Stock Market Takes a Leap: Dow Surges by 617 Points, Anticipating Interest Rate Decrease
The Federal Reserve is expected to lower the federal funds rate by 25 basis points (0.25%) with a 95% probability at its meeting next Wednesday, as the latest inflation data has prompted the central bank to resume rate cuts. The Core Consumer Price Index (CPI), which excludes volatile food and energy prices, remained unchanged from the July report, with a 0.3% month-over-month increase and a 3.1% year-over-year rise.
Simon Dangoor, head of Fixed Income Macro strategies at Goldman Sachs Asset Management (GSAM), anticipates the Fed to cut rates next week and potentially again in October. This prediction comes after the Core CPI figures and the rise in the probability of a 50 basis point cut, which has increased to 51% from zero one week ago.
In the technology sector, Micron Technology is expected to provide strong guidance on higher DRAM and NAND sales and pricing when it appears on the earnings calendar later this month. This optimistic outlook has led analysts at Citi to reiterate their Buy rating on the memory chipmaker and raise their price target to $175 from $150, representing implied upside of nearly 17% to current levels. Micron Technology's dynamic random-access memory (DRAM) chips are expected to see increased demand, particularly from the data center end market.
The labor market, however, appears to be experiencing some turbulence. After the downward revisions to payrolls announced earlier this week and the weak jobs report for August last week, the job market is looking the wobbliest since the pandemic. Weekly jobless claims climbed by 27,000 last week to a seasonally adjusted 263,000, which is the highest level since October 2021. Bill Adams, chief economist at Comerica Bank, suggests that this week's initial claims update should be taken with a larger-than-usual grain of salt due to the volatile nature of the data and the coincidence with the Labor Day holiday and the start of the school year.
In other market news, Amazon.com was added to Morgan Stanley's 'top pick' list by analyst Brian Nowak. The push into the roughly $600 billion fresh grocery market by Amazon is expected to unlock durably faster growth, according to Morgan Stanley. Every 1% of market share Amazon captures in the fresh grocery market is expected to boost Morgan Stanley's fiscal 2026 gross merchandise volume forecast by roughly 120 basis points.
On the stock market front, the Dow Jones Industrial Average finished up 1.4% at 46,108, the S&P 500 added 0.9% to 6,587, and the Nasdaq Composite gained 0.7% to 22,043, all ending at new record closing highs.
Dangoor, associated with GSAM, believes that while near-term inflationary pressures remain high, the Fed is likely to draw comfort from anchored inflation expectations and the absence of overheating in the labor market. The Consumer Price Index (CPI) increased by 0.4% month over month in August, higher than the 0.2% rise seen in July and the 0.3% increase economists expected. However, the annual increase remained at 2.9%, a quicker pace than the month prior but below the 3.1% year-over-year increase in the Core CPI.
In conclusion, while the economy and markets continue to navigate through various challenges, there are still opportunities for growth and optimism, particularly in the technology sector. The upcoming Fed meeting next Wednesday will be closely watched as the central bank decides on monetary policy amidst rising inflation and a potentially wobbly labor market.
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