With the twin inflation reports now in the rearview mirror, U.S. stocks are clinging to a sliver of optimism as traders gear up for the Federal Reserve’s highly anticipated rate-setting meeting next week. While the reports didn’t dramatically alter expectations for a rate cut, they did pour cold water on hopes for a more substantial reduction.
In early trading, major index futures are trading relatively flat. The tech sector, however, has been sending mixed signals, potentially injecting a dose of caution into the market’s recent rally. Traders are keeping a close eye on a consumer sentiment report expected later today, with a particular focus on forward inflation expectations. Some profit-taking, after the week’s significant gains, can’t be ruled out.
Fund manager Louis Navellier is bullish on the Fed’s move next week, stating, “The Fed cut on Wednesday is the big news of the month.” He adds, “There may be some repositioning going on, but the real action will likely come after the meeting, especially if there’s a surprise 50bps cut.”
Looking at the pre-market trading action on Friday, the SPDR S&P 500 ETF Trust (SPY) is up 0.25% at $560.48, while the Invesco QQQ ETF (QQQ) has gained 0.15% to $473.95.
Thursday’s session saw Wall Street end in the green, thanks to a strong second half recovery. The market initially reacted with muted enthusiasm to the August producer price inflation report and weekly jobless claims data, but buying activity in technology stocks, particularly those from the communications sector, and a rebound in energy stocks lifted indices higher in the afternoon.
The S&P 500 and Nasdaq Composite indices closed higher for a fourth consecutive day, reaching their highest levels since August 27th. The Dow Jones Industrial Average also advanced for a second straight day, ending at its best level for September. Small-caps outperformed, potentially anticipating the Fed’s move, as the market awaits the rate cut announcement. All 11 S&P 500 sectors finished in the green, with communication services, consumer discretionary, and energy stocks leading the gains.
For the week, the S&P 500 is up roughly 3.5%, while the Nasdaq Composite has gained a more substantial 5.3%. The indices are on track to rebound from the sharp pullback seen in the week ending September 6th.
Morgan Stanley’s Chief Investment Officer, Lisa Shalett, has cautioned investors against expecting steep and rapid rate cuts. She predicts a “soft landing” for the economy, with moderate growth and subdued inflation, which she believes will require slower and shallower rate reductions. “This scenario likely calls for slow and shallow rate reductions, in quarter-point increments toward 3.5% by the end of 2025,” she said.
Shalett acknowledged that recent labor, economic, and financial market signals have been mixed, suggesting cautious optimism for investors. She recommends considering the equal-weighted version of the index, which she believes offers a better risk-adjusted exposure compared to the cap-weighted version. She also highlights compelling trends in financials, industrials, energy, materials, and healthcare, along with certain segments of technology, such as software, and more defensive ideas like residential real estate investment trusts and utilities.
Looking ahead, the Labor Department will release its export and import prices report for August at 8:30 a.m. EDT. Economists are predicting a 0.1% month-over-month dip in export prices and a steeper 0.2% decline in import prices, compared to the 0.7% and 0.1% increases recorded for July.
The University of Michigan’s preliminary consumer sentiment survey for September is due at 10 a.m. EDT. Economists expect the headline consumer sentiment index to come in at 68.4, up from 67.9 in August. Traders will be watching for forward inflation expectations readings from the survey.
In other news, Adobe Inc. (ADBE) shares plummeted over 8% in pre-market trading after the company’s fourth-quarter guidance failed to meet analysts’ expectations. RH (RH), a home furnishing retailer, soared about 20% following its earnings report. Oracle Corp. (ORCL) shares rose roughly 6% after the company raised its 2026 revenue guidance during an analyst meeting coinciding with the Oracle CloudWorld conference in Las Vegas. The Boeing Company (BA) shed nearly 4% after the International Association of Machinists and Aerospace Workers rejected the company’s contract proposal, opting to strike starting Friday. Moderna, Inc. (MRNA) shares continued their downward trend after analysts lowered their expectations for the vaccine maker. The company’s shares had slumped over 12% on Thursday after announcing sub-par guidance for 2025 and cost-cutting measures.
In the commodities market, crude oil futures saw further strength in the early U.S. session, setting the stage for potential gains for a fourth consecutive day. Black gold is inching closer to the psychological barrier of $70 a barrel. It is on track to snap a streak of three straight weekly declines, as Hurricane Francine disrupted oil production in the U.S. Gulf Coast.
Gold futures, after reaching the $2,600 intraday high on Thursday and settling off those highs, climbed higher again on Friday. Bitcoin (BTC/USD) traded relatively flat but held above the $58,000 level as traders look ahead to next week’s Fed meeting. The yield on the 10-year Treasury note fell 3.4 basis points to 3.646%.
Most major Asian markets, excluding the Japanese, Chinese, and Indian markets, closed higher on Friday, following the overnight buoyancy on Wall Street. The Japanese market continued to suffer from the yen’s strength, as the Nikkei 225 average is heavily weighted with export stocks. European stocks extended their gains, with most major averages in the region firmer in early trading. The European Central Bank, on Thursday, cut rates in line with expectations, as growth in the region continues to slow. The central bank also reduced its growth forecast for the region.
