S&P 500 hits fresh record as rate-cut expectations grow

Markets closed higher on Thursday, with the S&P 500 reaching a new all-time high. The move came as U.S. Treasury yields declined, reflecting growing confidence that the Federal Reserve will cut interest rates at its September 17 meeting. Futures markets are pricing in a near-certainty (99.4%) of a 0.25% cut, which would lower the Fed’s benchmark range to 4.0–4.25%.

The “two bond markets” story:

• Short-term yields: 2-year Treasurys have fallen sharply, signaling markets’ conviction that rate cuts are imminent.

• Long-term yields: 30-year Treasurys remain elevated, hovering near 5%, as investors weigh risks of inflation, U.S. fiscal deficits, and even questions around the Fed’s independence.

This split highlights a tension between near-term optimism and longer-term caution.

Rate-cut expectations grow

Why this matters for investors

• A pullback in yields has historically provided relief to equities, with lower borrowing costs supporting both valuations and growth.

• At the same time, long-bond concerns about inflation and fiscal stability serve as a reminder that volatility can quickly return.

• Encouragingly, U.S. growth remains resilient — the Atlanta Fed currently estimates Q3 GDP growth at 3%.

Flows show strong demand for bonds

August saw record inflows into U.S. bond ETFs ($49 billion), signaling that investors continue to seek fixed-income exposure even as yields fluctuate. Inflation-linked bonds also recorded their longest streak of inflows since 2021.

Looking ahead

• Friday’s U.S. jobs report will be key: signs of slowing employment could cement the Fed’s decision to cut rates this month.

• Equity markets have often rallied in the year following the Fed resuming cuts after a pause, supported by stronger earnings momentum.

• But with long-term yields sensitive to inflation expectations, balancing risk across asset classes remains important.

👉 Takeaway: Markets are enjoying a “relief rally” as rate cuts loom, but the bond market is sending mixed signals. Ensuring your investments are positioned to benefit from potential easing, while still protecting against longer-term risks like inflation and fiscal pressures.

Wondering how shifting rates and record markets could affect your finances abroad? Let’s have a conversation. info@maxforesight.com