The green color returns to the US stock markets, against the background of investors' expectation that the first interest rate cut will come after March 2023 - significantly earlier than previous forecasts that talked about starting the US interest rate cut process only in early 2024.
Leading Wall Street indices rise more than 2%, the NASDAQ index and the S&P index jump by 2.4%, and the Dow Jones index adds 2.1% to its value.
The reason for the change in forecasts lies in the growing fears of a US recession, investors fear it will start earlier than expected, due to weak macro data released in recent days in the US.
"Stock markets like a recession, if it comes along with interest rate cuts. Cheap money fuels the dreams of the stock market and it goes up," an interest rate market trader told Israel Today.
Among the weak data that mark the beginning of the recession is the Purchasing Managers' Index, which recorded a significant decline in June, given the output of manufacturing that moved into a territory of contraction - below 50.
In addition, US inflation expectations began to decline and prices of agricultural commodities (soybeans, wheat and maize) continued to decline, declining by about 20% from a record high this year.
A commentary on the Purchasing Managers' Index report states that "After a mini-boom of consumers following the return of the economy to activity, many services in the economy these days are seeing households struggling to cope with price increases and manufacturers of durable goods are seeing a decline in new orders ... There was a significant decrease in demand for products and services in June compared to previous months. "
The question now being asked is whether the Fed will continue to take the same aggressive line of interest rate hikes it began to take this month when it raised interest rates at a very sharp rate of 0.75% or will it be milder.
It should be noted that one of the Fed members, Michelle Bauman, said recently she was backing up a 0.75% rate hike in July and then some more 0.5% rate hikes.
According to Guy Beit Or, chief economist at Psagot Investment House, "We are at an important crossroads in the markets - since the beginning of the year we have been talking about the point where market discourse will shift from inflation and interest rates to economic recession. However, we are in a state of stagnation, which puts the Fed in a very difficult position. "
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