On Wednesday, the S&P 500 Index saw a modest rise of +0.32%, while the Dow Jones Industrial Index climbed +1.04%. The Nasdaq 100 Index edged up slightly by 0.04%. E-Mini S&P Futures increased by +0.32% in September, although E-Mini Nasdaq Futures dipped slightly by -0.01% during the same period.
The S&P 500 and Nasdaq 100 both achieved new highs on Wednesday but retreated thereafter. This upward momentum in U.S. stocks was bolstered by optimism surrounding potential interest rate cuts expected by year-end, particularly as Treasury Secretary expressed his views on possible rate reductions of 150-175 basis points. Additionally, a decline of 5 basis points in the 10-year Treasury note yield contributed to market support.
Treasury Secretary Scott Bescent remarked that interest rates might be “down too much,” suggesting that a drop of around 150 to 175 basis points could be on the horizon. He noted the strong likelihood of a 50 basis point reduction, implying that the Fed could initiate a series of cuts starting in September.
Market sentiment began to shift towards anticipating a -50 basis point cut by September, fueled by a relatively tame CPI report from Monday and signs of a slowing labor market. A year-over-year increase of 2.7% in headline CPI for July was slightly below expectations, whereas core CPI came in a bit stronger at a 3.1% rise year-over-year.
On Wednesday, expectations in the federal fund futures market suggested a 100% likelihood of a -25 basis point rate cut in September, with only a 7% chance of a -50 basis point cut. These numbers have fluctuated since August 1, when sentiment projected a 96% chance for a -25 basis point cut, and a 40% probability before the July employment report. Overall, the market predicts a reduction in rates to 3.69% by year-end, dropping to 2.99% by 2026.
Looking ahead, all eyes are on the upcoming Trump-Putin summit in Alaska this Friday, seeking progress in the Russian-Ukraine conflict. However, President Trump has tempered expectations, calling it more of a “feeling encounter” rather than a guaranteed resolution. Ukrainian President Zelenskiy has also shown eagerness for a swift conclusion, dismissing the notion of territorial discussions.
In tariff-related news, President Trump has extended the tariff ceasefire with China for another 90 days, while also announcing plans to impose a 100% tariff on semiconductor imports, with exemptions for companies committing to U.S. production. Trump has also doubled tariffs on U.S. imports from India, linking it to India’s purchase of Russian oil, and stated that tariffs on drug imports would be unveiled soon.
This week, the focus will remain on trade negotiations and the Trump-Putin summit. Initial unemployment claims are projected to decrease to 225,000. Furthermore, projections for the final demand PPI and core PPI for July suggest increases. Retail sales are expected to rise, while the University of Michigan’s Consumer Sentiment Index is anticipated to improve slightly.
Futures trading discounts a 100% chance of action at the Federal Open Market Committee meeting on September 16-17, along with a 73% likelihood of an additional rate cut during the next meeting in late October.
According to Bloomberg Intelligence, S&P 500 revenues in the second quarter rose by 9.1% year-over-year, significantly outpacing expectations from the previous season.
Foreign markets closed positively on Wednesday, with Euro Stoxx 50 up by 0.92%. The Shanghai Composite in China hit a 3.75-year high, rising by 0.48%, and Japan’s Nikkei stock 225 gained 1.30%.
U.S. Treasury notes saw a rise of 12 ticks, driven by expectations for interest rate cuts, with the 10-year yield lowering slightly. European government bond yields similarly declined.
As for specific stocks, the “Big Seven” had a mixed day, with Apple and Amazon both rising over 1%. Amazon specifically closed up 1.4% following news of its grocery delivery expansion.
The Dow Jones outperformed the S&P 500 and Nasdaq 100, largely due to strong earnings from companies like UnitedHealth Group and Nike. Chip stocks continued their robust performance, driven by favorable rate cut speculations.
Bullish, a cryptocurrency firm, had a successful IPO, raising $1.1 billion, which saw its shares soar to $68.00 after a strong initial pricing. In contrast, CoreWeave’s stock fell over 20% due to disappointing revenue forecasts.
Hanesbrands jumped 3.7% following news of its acquisition by Gildan Activewear for around $2.2 billion, with Gildan’s shares also experiencing a significant rise. Palo Alto Networks saw slight growth after an upgrade from Deutsche Bank, while C3.AI faced a downgrade amid concerns over its recent revenue figures.
Kindercare Learning experienced a steep drop of 22% following disappointing quarterly results and reduced guidance.
In revenue reports, key companies like Deere & Co and Amcor PLC are expected to release their findings soon.
