Why Did Stocks Halt Their Rally Ahead of the Fed Decision? | The Close 7/29/2025

Transcript

THE FOCUS ON WHAT CAN GO WRONG, OR WHAT IS GOING RIGHT? FROM STUDIO TWO, I'M ROMAINE BOSTICK. >> I'M SCARLET FU. WE BEGAN WITH GAMES AND STOP ONES, AND THE DOLLAR. LET'S TAKE A LOOK AT WHERE THINGS STAND. WE LOST SOME MOMENTUM IN EQUITIES. THE S&P 500 DOWN FOR THE FIRST TIME IN SEVEN DAYS. MARKING THE END OF A SIX-DAY RECORD RUN IF WE CLOSE AT T... Read More

Key Insights

• Stocks ended a six-day rally, with the S&P 500 down 0.3% due to falling bond yields.
• Investors are awaiting key earnings reports from major companies like Microsoft and Meta.
• The Federal Reserve's upcoming rate decision is a significant focus for the market.
• Consumer confidence is improving, but concerns about big-ticket purchases remain.
• Job openings remain high, but the ease of finding jobs has decreased.
• Debt delinquencies among upper-income Americans are rising faster than other groups.
• The travel sector shows mixed results, with high-end demand strong but economy seats struggling.
• International inbound travel to the U.S. is declining, impacting markets like Las Vegas.

Questions & Answers

Q: Why did stocks halt their rally ahead of the Fed decision?

The S&P 500 lost momentum after a six-day record run as markets awaited the Fed decision and earnings from Meta and Microsoft. Trade shocks, tariffs, high valuations, and a shrinking risk premium were also identified as concerns, even as Treasury bonds rallied.

Q: What was happening to stocks, bonds, yields, and the dollar?

The S&P 500 was down for the first time in seven days, while Treasuries recorded their first rally in five days and their strongest rally in five weeks. The 10-year yield stood at 4.32%, and the Bloomberg Dollar Index reached a five-week high against G10 currencies.

Q: What was expected from the Federal Reserve decision?

No rate change was expected, and the Fed was not scheduled to provide an updated economic outlook until September. A key question was whether any policymaker would dissent in favor of a rate cut.

Q: Was a September 2025 interest-rate cut considered likely?

Kathy Jones said a September rate cut was likely, although her confidence was not high. She expected the effects of tariffs, DOGE cuts, and slower global growth to become more visible in late summer and early fall, potentially giving the Fed room to cut.

Q: Why was the Fed's path after September uncertain?

The Fed faced conflicting signals within its dual mandate. Labor-market and economic growth were slowing in some areas, but unemployment remained fairly low and inflation was still too high.

Q: What did bond markets indicate about long-term inflation?

The TIPS market implied about 2.3% longer-term inflation, depending on the tenor used. Jones said the market did not appear to expect inflation to return solidly to 2% and stay there, suggesting that roughly 2.5% might be as low as it gets.

Q: How could tariffs affect stocks and inflation?

Goldman's Peter Oppenheimer saw a real possibility that tariffs could hurt stocks as valuations rose and the risk premium declined. Jones also identified tariffs as a major factor behind inflation expectations, alongside immigration policy, its labor-market effects, and the rising deficit.

Q: Was the government's third-quarter borrowing plan a major bond-market risk?

The U.S. government intended to borrow more than a trillion in the third quarter, exceeding expectations. Jones did not view the maturity announcement as a major positioning risk because much of the issuance was expected to be Treasury bills, where demand had been extraordinarily strong, though she acknowledged that a trillion was still a lot for the market to absorb.

Summary & Key Takeaways

• The stock market saw a modest pullback, ending a six-day rally as bond yields fell. Investors are focused on upcoming earnings reports from major companies like Microsoft and Meta, as well as the Federal Reserve's rate decision. Consumer confidence data shows mixed signals, with improvements in sentiment but concerns about big-ticket purchases.

• The Federal Reserve's upcoming decision on interest rates is a significant market focus, with expectations of no change. The market is also closely watching economic data, including job openings and consumer confidence, to gauge the health of the economy. Trade uncertainties and rising debt delinquencies among upper-income Americans add to the market's cautious outlook.

• Travel sector earnings reveal a mixed picture, with strong demand for high-end services but challenges in the economy segment. Inbound international travel to the U.S. is declining, affecting destinations like Las Vegas. Companies like Booking.com and Caesars Entertainment report earnings, highlighting the varied impact of current economic conditions on the travel industry.