Stocks celebrate big interest rate cut, but ignore the Fed's outlook

Current market commentary

Last week, the Fed had to surprise, as the market had priced in a 25 or 50bp cut with around a 50% probability in the run-up to the meeting. It did so in the form of the larger cut. In the press conference, however, Powell tried to avoid an overly dovish interpretation. He said that the larger cut was more a consequence of the Fed's prolonged wait and should not be interpreted as a "new pace". The S&P 500 was little bothered by this and the next day rallied directly to a new all-time high, albeit with a simultaneous fall in the US dollar. Euro investors have not made money on the S&P 500 so far in the third quarter – unlike gold, which recently also hit a new high in euro terms. Investors are now focusing on the upcoming Q3 reporting season and the hot phase of the US election campaign. October is likely to be volatile in line with typical seasonality.

Short-term outlook

After the major central bank meetings in September, the next two weeks will be relatively quiet on the monetary policy front, apart from a speech by Fed Chairman Jerome Powell on 26 September. On the political front, the United Nations will meet from 22 to 26 September. At the corporate level, 1 October also marks the unofficial start of the Q3 reporting season. On the economic front, Monday's focus will be on the preliminary purchasing managers' indices (Sep.) for Germany, the eurozone and the US. This is followed on Tuesday by the German ifo Business Climate (Sep.). On Thursday, the US initial jobless claims (Sep.) and the US GDP (Q2, 2nd revision) are expected. On Friday, the Core PCE Deflator (Aug.) and Personal Income and Spending (Aug.) from the U.S. will be followed by German Unemployment Claims (Sep.). The following week, markets will focus on the US employment data (Sep.) and inflation data (Sep.) for Germany and the eurozone.