US stocks continued to decline as Middle East tensions pushed crude oil prices higher. Federal Reserve Chairman Powell's recent comments dampened expectations for aggressive rate cuts. The market is focused on the upcoming September nonfarm payroll data to assess the Federal Reserve's future rate path.
The Dow Jones Industrial Average fell 36.00 points, or 0.09%, to 42,294.15. The Nasdaq Composite dropped 221.89 points, or 1.22%, to 17,967.28. The S&P 500 Index declined 37.79 points, or 0.66%, to 5,724.69. Tech stocks led the market decline, with significant drops in Nvidia (NVDA), Intel (INTC), Apple (AAPL, Financial), Qualcomm (QCOM), and AMD (AMD).
Powell stated that there is no predetermined path for rate policy, but if the economy performs as expected, the Fed might cut rates twice more this year, each by 25 basis points. This contrasts with the significant 50 basis point cut last month, which bolstered confidence in economic growth and consumer spending. Traders now see a 40% chance of a 50 basis point rate cut next month, down from 53% last week, with an expected total rate cut of 70 basis points this year.
David Chao from Invesco predicts global risk assets will perform well by year-end due to resilient macroeconomic growth, shifting the market narrative from a US economic slowdown to the magnitude and pace of Fed rate cuts. Historically, US stocks perform poorly in September, but this year all three major indices reported monthly gains. The Dow rose 1.85%, the Nasdaq increased 2.68%, and the S&P 500 climbed 2.02% in September, marking the first such rise for the S&P 500 since 2019. The S&P 500, Dow, and Nasdaq also reported gains in Q3, with the Dow jumping 8.2%, the Nasdaq up 2.6%, and the S&P 500 rising 5.53%.
The September rate cut by the Fed provided a post-meeting boost to US stocks. The market is also watching the International Longshoremen's Association strike on the East and Gulf Coasts, which could cost the US economy billions daily without immediately impacting consumers. Analysts warn the strike might cause political turmoil ahead of the US presidential election and disrupt container and auto transportation but not bulk goods or military shipments.
Economic data showed US job openings at 8.04 million for August, above expectations. However, construction spending fell 0.1% month-over-month, while the ISM manufacturing PMI remained at 47.2, below expectations. The upcoming September nonfarm payroll report will be critical for assessing the US labor market and the Fed’s rate outlook.
Overseas, Eurozone inflation data showed a decline from 2.2% to 1.8% in August, the lowest since mid-2021, suggesting potential for ECB rate cuts. ECB President Lagarde expressed confidence in reaching the 2% inflation target, which may influence future monetary policy actions. Market expectations for ECB rate cuts in October are rising.
Focus Stocks: Nvidia (NVDA) and Microsoft (MSFT) are expected to lead the AI revolution. Tesla (TSLA) will reveal its Robotaxi on October 10. Barclays reports weak demand for Apple’s (AAPL, Financial) iPhone 16. Boeing (BA) might issue new shares to raise at least $10 billion. Microsoft (MSFT) is under increased scrutiny from Germany's Federal Cartel Office. Google (GOOGL) is building a $2 billion data center in Malaysia, and Meta Platforms (META) will expand AI investments in Vietnam. Goldman Sachs upgraded Ford (F) to “buy,” and analyst Raymond James downgraded Disney (DIS) due to theme park business pressures. CVS Health (CVS) may consider a corporate split.
Energy markets saw WTI crude oil futures rise by $1.66, or 2.44%, to $69.83 per barrel.
