Powell's Rate Cut Signal Spurs Stock Gains, Gold Soars

Powell's rate cut signals boost Asian stocks, gold hits record high, and oil prices extend gains.

By Bill Bullington

4/3, 18:58 EDT

Key Takeaway

  • Jerome Powell's reaffirmation of potential Fed rate cuts this year spurred gains in Asian equities and US stocks, with the S&P 500 up 0.1% and Nasdaq 100 up 0.2%.
  • Gold prices hit a record high surpassing $2,300 per ounce, while West Texas Intermediate crude aimed for its fifth consecutive session gain at around $85 per barrel.
  • Despite economic resilience and skepticism over the Fed's ability to deliver three rate cuts this year, markets show cautious optimism with persistent demand for US stocks.

Powell's Reaffirmation Boosts Equities

Jerome Powell's reaffirmation of the Federal Reserve's likely rate cuts this year provided a boost to equities in Asia, with markets primed for gains. US stocks saw a late-session rally, with the S&P 500 rising 0.1% and the Nasdaq 100 gaining 0.2%. Treasuries also showed strength, reversing early selling to end higher, supported by Powell's wait-and-see approach before reducing borrowing costs.

Skepticism Surrounds Rate-Cut Expectations

Traders had scaled back their rate-cut expectations amid signs of economic resilience and a more cautious tone from Fed officials. Powell's view that recent inflation figures did not materially change the overall picture led to skepticism on whether the central bank can deliver on its projection of three rate reductions this year. Krishna Guha at Evercore noted, "the base case remains June and three cuts this year."

Gold Hits Record High, Oil Extends Gains

Gold set a fresh record, surpassing $2,300 per ounce, supported by Powell's backing for potential rate cuts. West Texas Intermediate extended gains, aiming for its fifth consecutive session of advances, with the US benchmark price around $85 per barrel. The market also reacted to the impact of the strongest earthquake in Taiwan in 25 years, disrupting semiconductor production.

US Stock Market Dynamics

Morgan Stanley's global investment committee highlighted a "solid" outlook for a US soft landing but noted stretched expectations among stock investors. The rally in the US equity benchmark was driven by multiples expansion, with investors anticipating improving profits despite cooling growth. Citigroup Inc. strategists observed "persistent" demand for US stocks, indicating potential for the rally to resume after a recent pullback.

Street Views

  • Krishna Guha, Evercore (Neutral on the market):

    "Powell says recent data has not materially changed the picture. We read this as confirming that the spasm of concern in markets that the economy might be too strong for the Fed to cut in June was overdone — and the base case remains June and three cuts this year."

  • Morgan Stanley’s global investment committee (Neutral on US stocks):

    "Despite a 'solid' outlook for a US soft landing, stock investors’ expectations have gotten stretched."

  • Lisa Shalett, Morgan Stanley Wealth Management Chief Investment Officer (Neutral on S&P 500 rally):

    "The US equity benchmark’s rally was driven by multiples expansion, with investors expecting improving profits despite cooling growth."

  • Citigroup Inc. strategists led by Chris Montagu (Bullish on US stocks):

    "Investors appear to be showing 'persistent' demand for US stocks, suggesting there’s room for the rally to resume after the recent pullback."