Weekly Market Recap: U.S. Stocks Rally as Markets Brace for Fed Rate Decision

Market Overview:

U.S. equities rebounded strongly, with the S&P 500 rising 3.9%, led by a 5% surge in technology stocks. The Nasdaq Composite and Nasdaq-100 outperformed, while small caps in the Russell 2000 also gained 4%. The Dow Industrials and value-style indexes lagged, and the energy sector finished in the red. Optimism around an expected Fed rate cut and positive earnings reports from Oracle (ORCL) boosted sentiment. NVDA’s strong outlook for chip demand sparked a midweek reversal.

International equities trailed the U.S. market, with Europe, China, and Japan underperforming. The Shanghai Composite fell over 2% amid disappointing economic data, while the STOXX Europe 600, Nikkei 225, and FTSE 100 posted modest gains. The U.S. dollar-based MSCI EAFE and Emerging Markets indexes rose by over 2%, though still lagged U.S. markets.

Fixed income saw the Bloomberg Aggregate Bond Index edge higher, with yields falling ahead of the upcoming Federal Reserve meeting. Demand for 3- and 10-year Treasuries was strong, while the 30-year auction lagged. Rate cuts are anticipated, with the market pricing in over 1% in cuts this year.

Commodities rebounded as the Bloomberg Commodity Index climbed nearly 3%. Silver surged 10%, and gold hit record highs, while copper rose 4% amid tightening supply signals in China. Oil prices rose due to supply disruptions, and natural gas gained 2% due to smaller-than-expected storage injections. The U.S. dollar weakened, down 0.2% on rising speculation of a 0.50% rate cut at the next Fed meeting.

Federal Reserve Insights and Economic Roundup:

Inflation data from August showed a slight rise in consumer prices, driven by higher shelter costs, while energy prices fell. Services inflation remains a concern, potentially limiting the scope of rate cuts. Producer prices grew at the slowest pace since February, signaling easing cost pressures, especially from China.

The bond market is pricing in a more aggressive rate-cutting cycle, with over 1% of cuts expected this year. However, the Fed may act more methodically, focusing on both inflation containment and labor market support.

The Week Ahead:

Key data releases include Retail Sales (August) and Industrial Production (August) on Tuesday, followed by the FOMC Rate Decision on Wednesday. Additional economic indicators to watch include Housing Starts (August) and the Philly Fed Business Outlook (September).