The Dow Jones Industrial Average rose nearly 850 points, or 1.9% on Friday, closing at an all-time high of 45,631.74. The NASDAQ Composite also rose 1.9% – while the Standard and Poor’s 500 Index added 1.5% on the day (snapping a five-session losing streak). For the week in total – the Dow gained 1.5%, the S&P rose .3%, and the NASDAQ dropped .6%, with investors rotating a bit out of technology stocks. The reason for the Friday rally, that turned the week mostly positive, were comments from Federal Reserve Chair Jerome Powell indicating the central bank is likely to cut interest rates next month.
Powell stated, “the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.” In other words, the Federal Reserve is starting to worry more about employment than inflation, so an interest rate cut may be to stimulate the economy and the job market. After his speech at the Fed’s annual symposium in Jackson Hole, Wyoming, expectations for a quarter point interest rate cut next month increased notably. According to CME FedWatch, there is currently an 87% probability the Fed will cut rates at their next policy meeting on September 17th.
In addition to hopes for interest rate cuts, other factors supporting stock prices include general optimism around trade deals, less concern over tariffs, and solid second quarter earnings reports. Speaking of earnings, the market will be intently focused on NVIDIA this week, the last member of the Magnificent Seven to report earnings, Wednesday after the market close. NVIDIA become the first company to top $4 trillion in market value and is the poster child of Artificial Intelligence. This report could set the tone for the AI trade and possibly even the broader technology sector/market.
Also, ahead this week is an important read on inflation. The Bureau of Economic Analysis is scheduled to release the latest Personal Consumption Expenditures Price Index, the Fed’s preferred read on inflation, on Friday morning. Estimates are the PCE increased .2% from the prior month. The core PCE, which excludes food and energy, is expected to have risen 2.9% on a year-over-year basis. Any negative surprise here, meaning more inflation than expected, would lessen the likelihood of the stock market getting that interest rate cut it wants next month.
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