Before the bell

Market Highlights

• Inflation Concerns: Inflation appeared to be moderating, and the expectation that the Federal Reserve would likely cut rates at the upcoming meeting offered a glimmer of hope. However, Tuesday’s weak manufacturing report reignited recession worries.

• Bond Yields and Treasury Movements: With 10-year Treasury yields slipping below 3.85%, there was a clear shift toward safer assets. This coincided with a broader “risk-off” sentiment that saw growth stocks struggle and defensive stocks gain ground.

• Rate Cuts on the Horizon: The Federal Reserve was expected to announce its first interest rate cut of the year on September 18, with market expectations pointing toward a 25-basis-point reduction. Investors were debating whether the slowdown in the economy warranted deeper cuts.

• Labor Market Cooling: All eyes were on the August nonfarm payrolls report to be released on Friday, with expectations for 160,000 new jobs added. A tepid report would likely raise expectations for more aggressive Fed action in cutting rates, while a stronger report would calm recession fears.

Notable Earnings

• NVIDIA: The chipmaker, which controls over 80% of the AI data-center chip market, faced a new Department of Justice antitrust investigation. This news caused shares to tumble, adding to an already volatile quarter for the technology sector. While NVIDIA had been riding high on demand for AI-related chips, this new probe raised concerns about the company’s dominance and future growth trajectory. Investors will be watching closely to see if this marks the beginning of broader regulatory scrutiny for other major tech companies.

• Apple Inc.: Apple reported strong earnings, beating market expectations with solid iPhone sales and increased revenue from services like Apple Music and iCloud. However, shares of the tech giant fell slightly as the company warned of potential supply chain challenges in the upcoming quarters due to the China-U.S. trade tensions. Apple’s diversified business model, with its growing focus on wearables and subscriptions, continues to buffer it against the hardware sales slowdown, but investor sentiment remained cautious as the company looked ahead to the traditionally strong holiday season. With iPhone 15 on the horizon, Apple’s future earnings will be closely monitored by both tech enthusiasts and the broader market.

Expected Rate Cuts

The graph illustrates market expectations for the Federal Reserve's interest rate cuts, starting in September 2024 and continuing through 2025. As of the current rate of 5.50%, the Fed is anticipated to begin reducing rates on September 18, 2024, by 0.25 percentage points, bringing them to 5.25%. Additional cuts are projected for November 2024 (to 5.0%) and December 2024 (to 4.75%), with a steady decline continuing into 2025. By June 2025, the rates are expected to reach 3.50%, and by September 2025, they will settle between 3.0% and 3.25%, suggesting a return to a more stable long-term rate. This projection underscores market sentiment that the Federal Reserve will take a measured approach to easing monetary policy, aiming to balance inflation control with sustained economic growth.

Outlook Snapshot: The Week Ahead

Looking ahead, the economic narrative is set to focus heavily on the labor market and Federal Reserve policy. With the August nonfarm payrolls report poised to shape market sentiment, investors will be eagerly awaiting data on the number of jobs added and any changes in the unemployment rate. A softer-than-expected report could lead to heightened expectations for a larger interest rate cut from the Fed, while a stronger reading might ease recession fears, keeping markets cautiously optimistic. In addition to the jobs data, key reports on productivity growth and labor force participation will also be closely monitored, particularly given the critical role that these factors have played in keeping GDP growth robust throughout 2024. Market participants will also watch for further developments in the global energy market, as oil prices could see volatility following recent supply concerns and signs of slowing demand from China. As the Federal Reserve gears up for its next meeting, the potential for interest rate cuts continues to dominate headlines, and investors will be looking for any clues about the speed and magnitude of future policy easing. While September and October are typically known for market turbulence, the fundamental economic indicators remain broadly supportive, offering hope that the economy can achieve a soft landing in the months ahead.