Traders and arbitrageurs are unanimous: the probability that the US Federal Reserve (Fed) will lower its key rate at its September meeting at the latest is 100%.
This is indicated by the prices at which federal funds trade (fed funds) in interest rate futures markets, according to CME FedWatch. In fact, futures prices indicate a 93.3% probability that the Fed cut its rate by 0.25% in September.
But they also show a 6.7% probability that the cut will be 0.50 percentage points at that time, given that the Fed would have already cut its rate by 0.25 percentage points at its July 30-31 meeting.
The sum of the two gives us the probability of 100%.
The main reason for the enthusiasm among traders is the encouraging signs about inflation. The latest figures show the consumer price index fell by 0.1 percentage points in June, bringing the annualized rate to 3.0%, the lowest level in three years.
Much is made of the spectacular rise in shares of major technology companies to explain the new all-time highs that major stock indices continue to conquer. But is it time for smaller companies to join in this stock market euphoria as well?
Russell jumps
The Russell 2000 index, which includes U.S. small-cap companies, jumped 11% during a five-day trading session between July 10 and July 16. “The rebound is certainly spectacular given that during this period the S&P 500 index gained only 1%,” said Philippe Hynes, president of Tonus Capital. Considering that the performance of small and mid-cap stocks has been rather disappointing compared to the rest of the market since the beginning of the year, this rebound could well continue, according to him.
Cogeco
There is no doubt that Cogeco Communications was the star among Quebec companies over the past week. The stock rose from $54 to $62. Remember that last March, Frédéric Perron, who joined the firm in September 2020, was appointed president of Cogeco. In a difficult context for telecommunications firms, Cogeco’s share price depreciated from $60 to $51 between then and the release on July 11 of the results of its 3e quarter 2024. These results, as we can imagine, have exceeded the expectations of analysts and investors.
Investors urged to be cautious
Since last fall, the S&P 500 index has gained nearly 35%. This result is now reflected in the enthusiasm of investors for the stock markets. In his comments during the release of quarterly results, Jamie Dimon, chairman of JP Morgan Chase (US$211.96), the largest American bank, reported a record number of new individual investors during this three-month period. In his comments, however, the banker suggested that investors remain vigilant in this uncertain economic environment. The share price of JP Morgan Chase has gained nearly 60% since November.
In their most recent monthly stock market report, National Bank economists and strategists urge investors to be cautious about profit forecasts that they consider ambitious.
According to the consensus of stock market analysts, earnings per share of the S&P 500 index should increase by 13% over the next year. However, the economic situation is on the verge of deteriorating, indicates the Bloomberg index, which measures surprises in economic data, and is sinking more and more into negative territory, observe the experts of the National.
On this basis, they fear a significant decline in these consensus earnings estimates over the coming months.