Overview:
On September 13, 2024, U.S. stock markets closed higher, driven by growing bets that the Federal Reserve might opt for a larger 50 basis point rate cut at its upcoming meeting. This optimism came after comments from former New York Fed President Bill Dudley suggesting a strong case for a larger rate cut. The Dow Jones Industrial Average rose 0.72%, the S&P 500 gained 0.54%, and the Nasdaq Composite added 0.65%. Notably, the Russell 2000 small-cap index surged 2.5%, reflecting increased optimism in risk-sensitive stocks.
Despite mixed producer price data, which showed slightly higher-than-expected inflation, the market reacted positively to the possibility of a larger Fed rate cut. As the week ended, the S&P 500 and Nasdaq marked their best weekly performances since November 2023, rising 4.02% and 5.95%, respectively. The Dow added 2.60% for the week.
Fear & Greed Index:
Cautious Optimism – Investors remain cautiously optimistic as the market prices in a potentially larger rate cut, leading to gains across major indexes.
Key Indices (Closed Prices):
- Dow Jones Industrial Average: +0.72% at 41,393.78
- S&P 500: +0.54% at 5,626.02
- Nasdaq Composite: +0.65% at 17,683.98
Sector Performance:
- Winners:
- Small-Cap Stocks: The Russell 2000 surged 2.5% as rate-sensitive stocks outperformed.
- Consumer Discretionary: Uber shares jumped 6.4% after announcing a partnership with Waymo to launch autonomous ride-hailing services in Austin and Atlanta.
- Losers:
- Technology: Adobe fell 8.5% after issuing a weaker-than-expected earnings forecast for Q4.
- Industrial: Boeing dropped 3.7% after West Coast factory workers walked off the job.
Key Movers:
- Uber (UBER): Gained 6.4% after announcing a collaboration with Alphabet’s Waymo to introduce autonomous ride-hailing services in Austin and Atlanta.
- Adobe (ADBE): Declined 8.5% due to disappointing Q4 earnings forecasts.
- Boeing (BA): Fell 3.7% after workers at a key factory rejected a contract deal and went on strike.
Economic Data:
- Producer Price Index (PPI): August data showed a 0.2% increase, slightly higher than expected, indicating persistent inflation.
- Consumer Sentiment: A survey showed improved consumer sentiment in September as inflation worries eased. However, concerns about the November presidential election kept Americans cautious.
- Treasury Yields: The 10-year Treasury note yield fell to 3.648%, reflecting market expectations of a more dovish Federal Reserve stance.
- U.S. Dollar: The dollar weakened, especially against the yen, falling 0.6% to 140.93 yen, as expectations of a rate cut grew.
Outlook:
Investor sentiment continues to be shaped by the Federal Reserve’s upcoming interest rate decision. While bets on a 50 basis point cut have increased, the probability of a smaller 25 basis point cut remains almost equally likely, according to the CME FedWatch Tool. The market is also digesting mixed inflation signals, with both PPI and CPI data showing steady but persistent price pressures.
Small-cap stocks, which are more sensitive to interest rate changes, are expected to continue outperforming if the Fed opts for a larger cut. However, tech stocks like Adobe may face headwinds if the economy slows further. With growing optimism about a possible soft landing, the focus will shift to how corporate earnings and inflation data influence the Fed’s monetary policy path.