Are Rate Cuts Coming Too Late to Fend Off a Recession?

• Last week's decline hints at a growing unease among market participants.
• With the labor market softening further, is the Fed too late on rate cuts?
• The S&P 500’s recent struggles signal cautious trading ahead of the Fed’s upcoming rate decision.
• For less than $9 a month, InvestingPro's Fair Value tool helps you find which stocks to hold and which to dump at the click of a button.

Stocks ended last week lower, driven down by a jobs report that highlighted a continued slowdown in the labor market.

All three major indexes didn't do well, with the S&P 500’s 11 sectors—particularly communication services (NYSE:XLC), consumer discretionary (NYSE:XLY), and technology (NYSE:XLK)—suffering notable losses.

This came after the latest U.S. jobs report confirmed the ongoing softening in the labor market, intensifying expectations that the Federal Reserve will cut interest rates at its mid-September meeting (17th and 18th).

Federal Reserve Bank of New York President John Williams emphasized that now is the time for action, given progress in reducing inflation and the cooling labor market.

The key question is whether the Fed will opt for a substantial 50 basis point cut or a more modest 25 basis point reduction.

Although layoffs remain relatively low, many companies are delaying expansion plans due to high borrowing costs and uncertainty surrounding the November presidential election.

While lower interest rates generally benefit stocks, Friday's market drop following the jobs report reflects growing anxiety: is it too late for the Fed to act effectively?

Investors have long worried that the Fed’s cautious approach to rate cuts might harm the economy. The recent data supports this concern, contributing to last week's market decline.

Upcoming Period Not a Great One for S&P 500

Historically, the period from September 17 to September 30 has not been kind to the S&P 500. Since 1950, the index has posted mixed daily returns, as listed below.

1950-2023 Returns:

• 17th: -0.24%
• 18th: +0.16%
• 19th: +0.07%
• 20th: -0.21%
• 21st: -0.34%
• 22nd: -0.08%
• 23rd: -0.19%
• 24th: -0.12%
• 25th: -0.11%
• 26th: -0.23%
• 27th: +0.02%
• 28th: +0.27%
• 29th: -0.35%
• 30th: -0.09%

S&P 500 Price Chart

Last week, the S&P 500 struggled to overcome its resistance level and finally gave way. Now, for today, traders should watch the 5151 resistance area closely; a reversal off this level could indicate a potential rebound.

Gold Remains Resilient as Recession Fears Grow, Despite China's Halt on Purchases

Meanwhile, gold continues to rise, buoyed by central banks' relentless buying, which has propelled it to record highs (up more than 20% in 2024). Central banks are keen to diversify away from the US dollar, driving gold's recent rally.

Gold Futures Price Chart

Despite China’s absence from the gold market in August (after buying for 18 consecutive months until April), gold's strength persists.

China’s current wait-and-see approach, due to high prices, hasn't deterred gold’s upward trajectory. The yellow metal reached new all-time highs this year, with standard gold bars surpassing a million dollars for the first time.

Its resilience lies in its ability to remain indifferent to both the dollar and interest rates.

For investors interested in gold, consider these ETFs to profit from this trend:

• Gold Shares (NYSE:GLD): 0.40% commission
• iShares Gold Trust (NYSE:IAU): 0.25% commission
• GraniteShares Gold Trust (NYSE:BAR): 0.17% commission

All three ETFs track gold prices effectively and hit record highs in August.

Investor Sentiment Update

• The bullish sentiment fell 5.8 percentage points to 45.3%, still above the historical average of 37.5%.
• The bearish sentiment decreased 2.1 percentage points to 24.9%, remaining below the historical average of 31%.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, counsel or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple perspectives and is highly risky and therefore, any investment decision and the associated risk remains with the investor.