Fed likely to have short and 'shallow' rate cutting cycle

All three of the major US indexes (^DJI, ^IXIC, ^GSPC) closed out the shortened trading week with across-the-board gains, and the S&P 500 and Nasdaq Composite both set new record highs. State Street Global Markets macro multi-asset strategist Cayla Seder joins Market Domination Overtime to discuss the state of the market as June's jobs report marked the latest sign of economic cooling.

"We have this kind of moderation that's going on... but the actual level is still quite strong. And so I think what that means is as we're assessing this data, we have to put some of this moderation into context. And so, yes, you have a headline figure in the NFP [nonfarm payroll] print today that was still above pre-COVID norms. But then you do see some signs of weakness underneath," Seder tells Yahoo Finance

"However, if we take a step back, wage growth is still quite strong. JOLTS [Job Openings and Labor Turnover Survey] data implies that there are more job openings... than there are folks unemployed," Seder explains. When analyzed from that perspective, she believes that while an interest rate cut is in play for September from the Federal Reserve, "thus far, it looks like the economy is still perhaps too strong to expect a cut in the near term."

She notes that "the market does have this habit of getting ahead of itself," when economic data is released:

"I would caution folks from getting too excited about some signs of moderation and interpreting it as weakness and expecting too many cuts. Unless we're really going to start pricing in a recession, which thus far looks unlikely, it's going to be hard for the Fed to really deliver this large magnitude of cuts. And so it's much more likely, I think, that we're going to see a shorter and relatively shallow cutting cycle."

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This post was written by Melanie Riehl