Stocks reversed from an early slide following the steep two-day selloff to finish higher, after data showing U.S. services sector activity at a three-year low – combined with weak manufacturing woes and a slowdown in private sector job creation – sparked hopes that the Fed will cut interest rates.
“As long as you have the Fed on the side of the market with low rates, that’s really providing a backstop for investors,” says Jeff Kravetz, regional investment director at U.S. Bank.
According to CME FedWatch, the probability for a 25-bp cut at the October FOMC meeting has hit 90%, and an additional quarter-point cut in December is seen likely by 50%.
But tomorrow’s employment report from the Labor Department is seen as crucial, as a another weak reading could lead to another leg down in the market.
All 11 S&P 500 sectors rallied off their lows and finished higher in today’s action, led by energy (+1.3%), information technology (+1.2%) and real estate (+1.2%).
Even the financials group (+0.2%) squeezed out a late gain despite a continued decline in Treasury yields, with the two-year note tumbling 10 bps to 1.38% – its lowest level since September 2017 – and the 10-year yield slipping 7 bps to 1.53%.
WTI November crude oil fell 0.4% to $52.45/bbl, trimming sharp early losses but still finishing with its eighth straight daily decline.
