Wall Street Breaks Records as Morgan Stanley Sees 4 Cuts

US stocks finished the week powerfully. The Dow Jones crossed US$46,000 for the first time in history, and both the S&P 500 and Nasdaq closed at record levels. The rally followed another round of inflation and jobs data that gave investors fresh confidence that the Federal Reserve may soon be ready to ease policy.

The latest consumer price report showed inflation continuing to cool. Prices are still running above the Fed’s target, but the direction is downward, and that is what traders wanted to see. The employment numbers for August came in weaker than expected, while the rate of hiring slowed and the unemployment rate crept higher. It looks like the labour market is no longer overheated, and that gives the Fed more pressure to finally implement rate cuts.

Technology shares led the way higher. Chipmakers were especially strong after Broadcom raised its revenue forecast and highlighted surging demand from artificial intelligence customers. That positivity helped drive the Nasdaq into new territory. Real estate and housing stocks also gained as investors priced in the benefit of cheaper borrowing if rates fall. Consumer companies were more mixed. Lululemon cut its profit outlook, and the disappointment weighed on other retail names, a reminder that household spending remains under pressure.

Officials have been determined to bring inflation back under control and will not want to cut rates too early, but they can’t ignore the risk that the labour market is cooling too quickly. Markets are betting on a reduction in rates as soon as the next meeting.

Even with that uncertainty, the mood has clearly shifted. The Dow’s break above 46,000 and the new highs for the S&P 500 and Nasdaq reflect how firmly Wall Street is leaning toward a turn in policy. The next inflation release and any remarks from Fed officials will be critical in deciding whether this momentum can continue or whether optimism has moved ahead of reality.

Over the weekend, Morgan Stanley noted that it sees four consecutive rate cuts happening from the Fed’s next meeting through January next year. Their prediction is a series of 25 basis point cuts, and this could be more rocket fuel for the stock market. Gold has performed extremely well alongside the stock market recently and would be expected to do similarly on the back of inflation creating cuts.