US Stock Market Overview – Stock Rally Led by Target Following Better than Expected Financial Results

Fed minutes show a recalibration of rates
David Becker
E-mini Dow Jones Industrial Average

The US Consumer remains healthy which buoyed consumer stocks following better than expected earnings results that were reported by Target before the opening bell. Target was the best performing stock in the S&P 500 index rising more than 20%. Lowes was the second best-performing stock rising slightly more than 10%. All sectors were higher, led by cyclical, consumer staples were the lagger in an up-tape. The Fed minutes showed that the central bank was making a recalibration of rates and did not believe that the cut was part of a more aggressive easing cycle. President Trump reversed his comments that the administration was evaluating a tax cut. The CBO reported on Wednesday that the budget deficit in the US would be larger than expected.

The Fed Made Tweaks to US Interest Rates

The minutes from the Federal Reserve meeting on July 31, showed that bank governors saw their move to cut interest rates last month as a “recalibration” rather than the start of a more aggressive easing cycle. The minutes of the July 30-31 meeting, released on Wednesday, also showed officials believed were uncertain about the Trump administration’s trade policy and showed concern that the issues were not likely to let up anytime soon, creating a headwind for the US economic outlook. As a result, Fed officials didn’t spell out in much detail how they might act to lower rates in the months ahead but stressed the need to be flexible.

Trump Reverses Tax Cut Comments

President Trump said Wednesday he wasn’t currently looking at any form of tax cuts, a reversal from a day earlier when he floated possible moves to bolster economic growth. Mr. Trump has maintained the economy remains on a strong footing despite some recent warning signs, but he has also pressured the Federal Reserve to cut interest rates, which he argues would supercharge growth. In his comments Wednesday, he ruled out a cut in the payroll tax and also said he wasn’t looking to reduce capital-gains taxes by indexing gains to inflation.

CBO Sees Larger Deficit

Federal deficits are projected to grow much more than expected over the next decade thanks to the two-year budget agreement lawmakers and the White House struck last month. The agency increased its forecasts for deficits over the next decade by $809 billion, to $12.2 trillion, in updated budget projections released Wednesday. The increase primarily reflects higher federal spending under the new budget deal, partly offset by lower projected interest rates. CBO said the new agreement, which increased spending roughly $320 billion over the next two years above previously enacted spending caps, will add roughly $1.7 trillion to deficits between 2020 and 2029. That reflects CBO’s assumption that federal spending will continue to grow at the rate of inflation after 2021.

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