U.S. Stocks Hit Record Highs Before Reversing

By Koh Gui Qing and Elizabeth Howcroft
NEW YORK/PARIS (Reuters) – U.S. stocks briefly hit record highs on Friday before reversing course to trade lower. This shift followed data showing U.S. job growth cooled in August, prompting investors to double down on bets that the Federal Reserve may cut interest rates later this month, potentially by as much as 50 basis points.

Speculation surrounding an aggressive rate cut from the Fed caused Treasury yields to nosedive, weakening the U.S. dollar, while simultaneously pushing gold prices to a record high near $3,600 per ounce.

Lower interest rates are generally perceived as favorable for equity markets, as they can lead to reduced borrowing costs for businesses. Gold, which offers no interest, tends to perform well when rates are low and market uncertainty is high.

Art Hogan, a strategist at B Riley Wealth Management in Boston, noted, “This number today puts a 50-basis-point rate cut at the next meeting back on the table. More significantly, I think 75-basis-point before the end of the year is now pretty much of a lock.”

U.S. data revealed that nonfarm payrolls increased by only 22,000 jobs last month, falling short of forecasts for a gain of 75,000 positions, following an upwardly revised increase of 79,000 in July.

The S&P 500 Index reached a record high of 6,532.65 points early in the trading session before retreating to a 0.32% decline. The Dow Jones Industrial Average also hit a record high before slipping 0.5%, while the Nasdaq Composite Index ended unchanged.

In line with expectations of lower rates, the two-year Treasury yield dropped 6.4 basis points to 3.5277%, while the benchmark 10-year yield fell 8.3 basis points to 4.0934%. Lower Treasury yields pressured the U.S. dollar, leading to a 0.5% decrease in the dollar index to 97.747. Meanwhile, the euro appreciated by 0.6% to $1.17625.

In Europe, the STOXX 600 index declined by 0.2%, while the FTSE 100 remained stable, and France’s CAC 40 lost 0.3%. This muted performance contributed to the MSCI World Equity Index finishing just 0.13% higher.

Olu Sonola, head of U.S. economic research at Fitch Ratings in New York, stated, “The warning bell that rang in the labor market a month ago just got louder.” He added that a weaker-than-expected jobs report almost guarantees a 25-basis-point rate cut this month.

Fed Chair Jerome Powell had previously reinforced speculation for rate cuts through a dovish speech at the Fed symposium in Jackson Hole.

Market sentiment has improved in recent days following earlier declines in global stocks and rising long-dated bond yields in Europe, due to investor concerns about the financial situations in various countries, particularly Britain and France.

Yields eased on Friday, with France’s 30-year yield dropping to 4.3873%, down from a peak of 4.523% on Wednesday. The UK’s 30-year yield was at 5.553%, after borrowing costs reached their highest since 1998 earlier in the week. The 10-year German yield stood at 2.7051%, following unexpected declines in German industrial orders for July.

After extensive negotiations, the U.S. ratified a deal to impose lower auto tariffs on Japan, which saw the dollar decrease by 0.7% against the yen to 147.5.

Oil prices declined for a third consecutive day ahead of a weekend meeting of OPEC and allied producers. Brent crude futures settled 2.2% lower at $65.50 a barrel, while U.S. crude dipped 2.5% to $61.87.

The European Union’s energy commissioner expressed that the bloc would welcome U.S. President Donald Trump’s proposal to halt purchases of Russian oil.

Spot gold rose by 1.2% to $3,589.01 per ounce, having reached a record of $3,597.66 earlier, and is on track for its strongest weekly gain in nearly four months.