Wall Street endures roller coaster week as panic selling eases

Wall Street experienced a wave of panic selling at the start of the week, driven by fears the U.S. economy might be heading into a recession after the release of a jobs report that came in cooler than expected on the previous Friday.

As a result, traders fully priced in a 50-basis-point interest rate cut by the Federal Reserve in September, with speculation even swirling around the possibility of an emergency cut.

The bearish momentum paused following the release of the Institute for Supply Management survey, which reported a stronger-than-anticipated expansion in the U.S. service sector for July.

The market began to recover after the Bank of Japan said it would not raise interest rates during periods of volatility. This dovish statement helped the dollar regain ground against the yen, following significant losses due to the unwinding of carry trades.

Further easing concerns and boosting risk sentiment was the report of weaker-than-expected jobless claims, which propelled the S&P 500 to its best daily performance since February 2023 on Thursday.

By the end of the week, traders were giving almost equal odds to a 25-basis-point or a larger 50-basis-point cut in September, ahead of the highly awaited Consumer Price Index inflation report for July scheduled for next week.

Trump and Fed influence

Donald Trump suggested that U.S. presidents should have influence over Federal Reserve interest rate decisions, potentially challenging the Fed's political independence. He said he believes his instincts surpass those of Federal Reserve officials and hinted at possible changes to the central bank's operations.

Mortgage rates drop

As expectations for rate cuts rise, mortgage rates have dropped to their lowest levels in over a year, relieving pressure on homebuyers. The 30-year fixed rate fell to 6.47% and the 15-year fixed rate to 5.63%. Goldman Sachs analysts suggest this decrease could potentially boost home price appreciation.

Fed rate cut predictions

A Benzinga poll reveals that 75% of respondents believe Federal Reserve rate cuts could prevent a recession. Additionally, 68% view the recent market downturn as temporary, reflecting overall optimism about economic stability despite short-term market volatility.

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Benzinga is a financial news and data company headquartered in Detroit.