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Wall Street Upbeat as Economic Data Fuels Hope for Rate Hike Pause

Fresh economic data indicating a slowing U.S. economy has fueled optimism that the Federal Reserve will pause rate hikes in September, leading to a rise in the S&P 500 and Nasdaq.

Wall Street sign
Wall Street sign

Softening Labor Market Eases Investor Concerns

The S&P 500 traded at a nearly three-week high after an ADP National Employment report indicated a softening labor market, showing private payrolls increased by 177,000 jobs in August, compared to estimates of 195,000. Additionally, the U.S. economy grew 2.1% in the second quarter, slower than the preliminary estimate of 2.4% growth. Rob Haworth, a senior investment strategist at U.S. Bank Wealth Management, noted that the somewhat softer employment data is easing investor concerns about future Federal Reserve interest rate hikes.

Demand for Riskier Assets Increases

The prospect of a "softer landing" for the U.S. economy also boosted demand for growth stocks and other riskier assets, at the expense of defensive stocks, according to Haworth. Among the 11 S&P 500 sector indexes, eight rose, led by information technology and energy, which gained 0.62% and 0.42% respectively. Mastercard and Visa also saw gains after a report indicated plans to raise credit card fees, while HP Inc's stock tumbled after it trimmed its annual forecast due to slowing demand.

Bets on Unchanged Interest Rates Rise

Traders' confidence in the Fed leaving interest rates unchanged in September increased to nearly 89%, up from 86% the previous day, as shown by the CME Group's FedWatch tool. Meanwhile, bets on a pause in November rose to 54% from about 52%. Concurrently, U.S. Treasury yields slipped to a near three-week low, with the 10-year yield at 4.1%.

S&P 500, Nasdaq, and Dow Jones Performance

The S&P 500 and Nasdaq Composite Index saw gains of 0.23% and 0.27% respectively, while the Dow Jones Industrial Average remained unchanged. Notably, chipmaker Nvidia climbed 1.3%, and Apple added more than 1%. Investors are now closely monitoring the personal consumption expenditures price index and non-farm payroll numbers due later this week for more clues on interest rates.

Light Trading Activity and Other Stock Movements

Trading activity has been light ahead of the U.S. Labor Day holiday on Monday. Brown-Forman's stock fell 4% after the Jack Daniels whiskey maker missed its first-quarter sales and profit estimates. However, advancing issues outnumbered falling ones within the S&P 500 by a 1.6-to-one ratio. The S&P 500 posted 23 new highs and one new low, while the Nasdaq recorded 59 new highs and 62 new lows.