Weekly Wrap

The stock market rebounded following last week's big declines. Buy-the-dip interest was a support factor, along with upside momentum acting as its own catalyst by the end of the week. Many stocks participated, but mega caps and semiconductor shares had an outsized impact on index gains.

The Vanguard Mega Cap Growth ETF (MGK) jumped 5.5% and the PHLX Semiconductor Index (SOX) surged 10.0%. NVIDIA (NVDA) was a standout performer, bouncing 15.8% following last week's slide. 

Things looked a little shaky on Wednesday after the August Consumer Price Index stoked selling interest due to the understanding that core-CPI, which excludes food and energy, remained above the Fed's 2.0% target at 3.2% year-over-year.

Stocks quickly recovered, though, when the S&P 500 held above last Friday's low (5,402) on Wednesday's initial retreat. The strength in NVIDIA also helped get stocks back on a winning track. 

Other data this week garnered muted responses from stocks and bonds. Initial jobless claims were little changed and remain below recession-like levels at 230,000 and the August Producer Price Index reflected moderating inflation at the wholesale level.

Selling interest in recent weeks was partially predicated on concerns about economic growth, but this week's price action signaled a shift in that thinking. Small and mid cap stocks outperformed their larger peers by the end of the week, reflecting the belief that the U.S. economy will enjoy a soft landing and that the Fed will cut rates to secure that soft landing.

Market participants also see a higher likelihood of a 50 basis points rate cut at next week's FOMC meeting compared to one week ago. The fed funds futures market now shows a 45.0% probability of a 50 basis points rate cut in September, up from 30.0% last Friday, according to the CME FedWatch Tool. 

The 2-yr yield, which is most sensitive to changes in the fed funds rate, dropped seven basis points this week to 3.58% and the 10-yr yield dropped six basis points to 3.65%.

Only one S&P 500 sector settled lower -- energy (-0.7%) -- while the information technology sector led the pack by a wide margin, climbing 7.3%. 

Monday:

The stock market had a solid showing following last week's broad retreat. The major indices exhibited some up and down action, but maintained gains through the entire session, ultimately selling near session highs.

Many stocks participated in upside moves, driven by buy-the-dip interest, but mega caps and semiconductor shares had an outsized impact on index performance.

Alphabet (GOOG) went against the upside grain, dropping after the start of Google's antitrust trial. Apple (AAPL), which unveiled new iPhones and other products at the "It's Glowtime" event, had been down as much as 1.8% earlier before settling the session slightly higher.

Treasuries settled mixed after last week's big gains, which acted as fuel for buying in the stock market.

Reviewing Monday's economic data:

• July Wholesale Inventories 0.2% (Briefing.com consensus 0.3%); Prior 0.2%
• Consumer credit increased by $25.5 billion in July (Briefing.com consensus $11.5 billion) after increasing a downwardly revised $5.2 billion (from $8.9 billion) in June.
  • The key takeaway from the report is that consumer credit was flowing in July for both revolving and nonrevolving credit, aided by falling interest rates.

Tuesday:

The stock market exhibited upside and downside action at the index level, but moves in either direction were relatively limited. The S&P 500 (+0.5%) traded up as much as 0.5% and traded as low as 0.5%. The mixed action was influenced by volatile moves in some mega cap names, along with hesitation in front of Tuesday's presidential debate and Wednesday's release of the August Consumer Price Index at 8:30 ET.

JPMorgan Chase (JPM) was the worst performer in the DJIA, followed by Goldman Sachs (GS), after the former suggested expectations for 2025 net interest income are a bit too high and the latter said it sees Q3 trading revenue tracking towards a 10% decline.

Other bank stocks traded down in response to the aforementioned headlines, and in response to Ally Financial (ALLY) saying credit challenges have intensified. The SPDR S&P Bank ETF (KBE) settled 0.9% lower and the S&P 500 financial sector closed 1.0% lower.

Tuesday's economic lineup featured the NFIB Small Business Optimism Survey, which dropped to 91.2 in August from 93.7.

Wednesday:

Wednesday's trade started on a downbeat note after the release of the August Consumer Price Index (CPI). The report stoked selling interest due to the understanding that core-CPI, which excludes food and energy, remained above the Fed's 2.0% target at 3.2% year-over-year.

The S&P 500 was down as much as 1.6%, the Nasdaq Composite was down as much as 1.4%, the Russell 2000 was down as much as 1.9%, and the Dow Jones Industrial Average was down as much as 1.8%.

Stocks staged a turnaround, though, that left the major indices near session highs. The S&P 500 logged a 1.1% gain and the Nasdaq Composite rose 2.2%, propelled by strength in the semiconductor space and mega cap stocks.

The recovery kicked into gear when the S&P 500 held above last Friday's low (5,402) on the initial retreat. The positive price action was helped by strength in NVIDIA (NVDA), along with other semiconductor and mega cap shares.

Many stocks participated in the afternoon rally, leaving the equal-weighted S&P 500 0.1% higher and six S&P 500 sectors with gains.

Reviewing Wednesday's economic data:

• Weekly MBA Mortgage Applications Index 1.4%; Prior 1.6%
• August CPI 0.2% (Briefing.com consensus 0.2%); Prior 0.2%, August Core CPI 0.3% (Briefing.com consensus 0.2%); Prior 0.2%
  • The key takeaway from the report is the understanding that core inflation is sticking stubbornly above the Fed's inflation goal of 2.0% which, to be fair, is oriented around the PCE Price Index. Still, the elevated core reading on a monthly and annual basis will be a focal point for the Fed and a likely reason to keep a September rate cut capped at 25 basis points.

Thursday: 

The stock market continued this winning week with another solid move higher. The S&P 500 (+0.8%), Nasdaq Composite (+1.0%), Dow Jones Industrial Average (+0.6%), and Russell 2000 (+1.1%) settled near their best levels of the session.

Upside momentum was a support factor in Thursday's trade, along with ongoing buying in NVIDIA (NVDA), which is nearly 16% higher than Friday's close.

Many stocks participated in today's climb. 23 of the 30 Dow components settled higher and all 11 S&P 500 sectors registered gains.

Thursday's economic releases didn't garner a big reaction from stocks or bonds. Initial jobless claims were little changed and remain below recession-like levels at 230,000 and the August Producer Price Index reflected moderating inflation at the wholesale level.

Reviewing Thursday's economic data:

• Weekly Initial Claims 230K (Briefing.com consensus of 229K); Prior was revised to 228K from 227K, Weekly Continuing Claims 1.850 mln; Prior was revised to 1.845 mln from 1.838 mln
  • The key takeaway from the report is that initial jobless claims remained fairly steady, underscoring the point that the labor market isn't suffering a material and rapid erosion that would challenge the soft landing view.
• August PPI 0.2% (Briefing.com consensus of 0.2%); Prior was revised to 0.0% from 0.1%, August Core PPI 0.3% (Briefing.com consensus 0.2%); Prior was revised to -0.2% from 0.0%
  • The key takeaway from the report is the recognition that inflation at the wholesale level is moderating, which lessens concerns about heightened pass-through pressures to the consumer.
• August Treasury Budget -$380.1 bln; Prior -$243.7 bln
  • The key takeaway from the report is that the U.S. government continues to run large budget deficits, which necessitates a large amount of Treasury issuance for government funding.

Friday: 

The winning week for equities ended on a strong note. The three major indices logged gains ranging from 0.5% to 0.7% and the Russell 2000 outperformed, jumping 2.5%. Upside momentum acted as its own buying catalyst, along with the belief that the economy is headed for a soft landing.

The release of the preliminary University of Michigan Consumer Sentiment survey for September corroborated that view, showing that year-ahead expectations for personal finances and the economy both improved.

The market was already repricing rate cut expectations in front of the release, signaling optimism that the Fed may cut rates 50 basis points next week.

A solid decline in shares of Boeing (BA) acted as a limiting factor for the Dow Jones Industrial Average (+0.7%) after news that its machinists union voted by 96% in favor of striking, which prompted warnings about a downgrade risk from Fitch ratings and Moody's ratings.

Reviewing Friday's economic data:

• August Export Prices -0.7%; Prior was revised to 0.5% from 0.7%
• August Export Prices ex-ag. -0.6%; Prior was revised to 0.8% from 1.0%
• August Import Prices -0.3%; Prior 0.1%
• August Import Prices ex-oil -0.1%; Prior 0.1%
• September Univ. of Michigan Consumer Sentiment - Prelim 69.0 (Briefing.com consensus 68.1); Prior 67.9
  • The key takeaway from the report is that year-ahead expectations for personal finances and the economy both improved despite substantial uncertainty surrounding the election.