Overview:
The U.S. stock market closed nearly flat on Tuesday as investors braced for the Federal Reserve’s interest rate decision, expected Wednesday. Earlier in the day, the S&P 500 reached an all-time intraday high but ended the session with modest gains, up 0.03% at 5,634.58. The Dow Jones Industrial Average fell 0.04% to 41,606.18, while the Nasdaq Composite managed to buck the trend, gaining 0.20% to close at 17,628.06.
Stronger-than-expected U.S. retail sales data for August and a rebound in industrial production signaled economic resilience, potentially weakening the case for an aggressive rate cut. However, traders remained split, with a 63% chance priced in for a 50 basis point rate cut and a 37% probability of a more cautious 25 basis point cut by the Federal Reserve, according to the CME FedWatch Tool.
In global markets, sentiment was weighed down by weaker-than-expected industrial output growth in China, which hit a five-month low. In the U.S., the dollar firmed against major currencies, further impacting global market sentiment.
Fear & Greed Index:
Caution – Investors are cautiously awaiting the Federal Reserve’s decision, with market participants deciding whether the Fed will opt for a larger rate cut.
Key Indices (Closed Prices):
- S&P 500: +0.03% at 5,634.58
- Dow Jones Industrial Average: -0.04% at 41,606.18
- Nasdaq Composite: +0.20% at 17,628.06
Sector Performance:
- Winners:
- Technology: The tech-heavy Nasdaq outperformed the broader market, with notable gains in Microsoft and Amazon.
- Consumer Discretionary: Retail stocks saw a boost following the release of strong retail sales data for August.
- Losers:
- Industrial: Weighed down by Boeing, which fell 2.1% amid concerns about supply chain disruptions.
- Energy: Oil prices rose, but energy stocks struggled to gain traction despite production disruptions in the Gulf of Mexico caused by Hurricane Francine.
Key Movers:
- Microsoft (MSFT): Gained 1.4% as investors flocked to tech stocks ahead of the Fed decision.
- Boeing (BA): Dropped 2.1% due to supply chain concerns affecting production.
- Apple (AAPL): Rose 0.6% after reports suggested stronger-than-expected demand for its new iPhone models.
Economic Data:
- U.S. Retail Sales: Retail sales increased by 0.6% in August, beating expectations and indicating consumer spending remains robust despite higher interest rates.
- Industrial Production: Rebounded by 0.4% after a contraction in July, signaling ongoing resilience in the manufacturing sector.
- Treasury Yields: The 10-year Treasury yield rose to 3.644%, while the yield on the two-year Treasury climbed to 3.5986%, reflecting expectations of near-term rate cuts.
- U.S. Dollar: The dollar firmed against a basket of currencies, with the Dollar Index rising 0.28% to 100.98. It also gained 1.19% against the yen, reaching 142.29 yen.
Outlook:
As the Federal Reserve’s interest rate decision looms, investor sentiment remains cautious. While the likelihood of a 50 basis point rate cut has increased, stronger-than-expected economic data could sway the Fed toward a more conservative 25 basis point cut. With a market sentiment split, volatility may arise following the announcement, especially if the Fed delivers an unexpected rate decision.
Global markets continue to be influenced by China’s sluggish economic recovery, further complicating the international market outlook. In the U.S., energy stocks may see further pressure as oil production in the Gulf of Mexico faces disruptions due to Hurricane Francine. In contrast, tech stocks are poised to benefit from continued optimism ahead of the Fed’s decision.