Underlining the point, the Dow Jones Industrial Average hit another record close on Thursday and both Germany’s DAX and Europe’s broad STOXX 600 hit new highs on Friday too.
And that broadening of what many had feared was an overly concentrated market is another sign of some normalisation of market behaviour, along with a return of volatility gauges back closer to long-term averages and a resumption of the negative correlation between stock and bond returns.
For many, that’s a much more sustainable constellation and the economic picture backs that up going into Monday’s Labor Day holiday.
Second-quarter U.S. GDP growth was revised higher on Thursday, while embedded PCE inflation gauges were marked lower and weekly jobless readings were little changed.
The release on Friday of the July monthly PCE reading is next up and is expected to be similarly benign, allowing the Federal Reserve to go ahead with its first quarter-point interest rate cut next month – while market pricing retains a total of 100 basis points of easing to year-end.
Wall St stock futures were higher again ahead of the final trading day of the month and Treasury yields fell back a touch from Thursday’s slight gains.
Soothing the bond market in a week of heavy new debt sales was an affirmation late Thursday of Fitch’s AA+ U.S. sovereign credit rating with a stable outlook.
Borrowing costs across the economy are ebbing more generally, with the average rate on popular U.S. 30-year mortgages falling to 6.35% this week, the lowest since May 2023.
Pointedly, Fitch’s review said the U.S. fiscal profile is likely to remain largely unchanged regardless of who wins the upcoming presidential election, citing structural strengths including high per capita income and financial flexibility as bolstering the credit rating.
And despite a flurry of election trades earlier in the summer, the dramatic switch of fortunes in opinion polls and betting markets has barely flickered on the overall setting of buoyant U.S. markets at large.
Democratic Vice President Kamala Harris’ late entry in the presidential race after President Joe Biden’s withdrawal in July tightened the race against Republican candidate Donald Trump. A Reuters/Ipsos poll this week showed she leads 45% to 41% and another published in Friday’s Wall Street Journal confirmed she was marginally ahead – with betting markets now seeing her as clear favorite.
Harris’ first interview with a major news organization since becoming the Democratic nominee was aired on CNN on Thursday, but there was little to disturb market views of what her Presidency would look like.
