Stocks See Support As Bessent Moves for Large Rate Cut

Wall Street was in celebration mode today as the S&P 500 and Nasdaq 100 both etched fresh record highs, riding a wave of optimism fueled by dovish monetary expectations and a continued streak of strong corporate stocks earnings. By midday, the S&P 500 was up 0.40%, the Dow Jones Industrial Average gained 0.59%, and the Nasdaq 100 rose 0.44%. Futures echoed the sentiment, with September E-mini S&P contracts up +0.38% and Nasdaq futures up +0.54%.

Bessent’s Bold Rate-Cut Forecast Pushes Yields Lower

At the center of the bullish momentum was Treasury Secretary Scott Bessent, whose bold remarks fanned hopes for substantial rate relief. Bessent called current interest rates “too constrictive” and suggested they should be slashed by 150 to 175 basis points, starting with a possible 50 bp cut in September. The bond market welcomed the idea: the 10-year yield fell 4 basis points to 4.248%, while the 2-year yield dropped 4.2 basis points to 3.689%, extending Tuesday’s declines.

Cooling Inflation and Weak Jobs Data Strengthen the Case

Investors were already leaning dovish after a benign July CPI report, which showed headline inflation slowing to +2.7% y/y. While core inflation at +3.1% y/y came in slightly hotter than expected, a cooling labor market—with average monthly payroll growth of just +35,000 over the past three months—has strengthened the case for easing. Federal funds futures now fully price a -25 bp cut in September, with even a small 1% probability for a double-sized move. Markets are also factoring in about -63 bps of total cuts by year-end.

Trade Tensions Simmer as Tariff Actions Intensify

Global headlines are also shaping sentiment. Traders are watching this Friday’s Trump-Putin summit in Alaska for any glimmer of progress in ending the war in Ukraine, though both sides have tempered expectations. On trade, President Trump has extended a tariff truce with China while simultaneously moving forward with sweeping new duties, including 100% tariffs on semiconductors, doubled tariffs on Indian imports, and planned pharmaceutical tariffs to follow. If enacted, the average U.S. tariff would climb to 15.2%, more than six times higher than pre-2024 levels.

Corporate earnings have been another tailwind. With over 82% of S&P 500 firms reporting Q2 results, earnings are on track to grow +9.1% y/y—the best in four years and far stronger than the +2.8% expected pre-season. The Magnificent Seven are all in positive territory, with Amazon and Tesla leading the way. M&A activity added extra energy: Hanesbrands surged after its official $2.2B acquisition deal with Gildan Activewear.

Overseas, Europe’s Euro Stoxx 50 climbed +0.86%, Shanghai hit a 3.75-year high, and Japan’s Nikkei closed at a new record. With the market now locked in on rate cut speculation, Friday’s retail sales and consumer sentiment data could either solidify the rally—or test its resilience.