- AI stocks dropped on Monday as investors took profits after a long rally in the previous weeks.
- Markets are pricing in two rate cuts this year, with the likelihood of the first in September at 61%.
- The next big report is the US PCE price index, which is expected to show moderate price pressures.
Equities were mixed on Monday as investors shifted from AI to more stable financials, utilities, and energy stocks. As a result, the Dow soared while the Nasdaq and the S&P 500 fell. At the same time, market participants were gearing up for more data from the US that could give insight into the Fed’s policy path.
Nvidia (Source: Bloomberg)
AI stocks dropped on Monday as investors took profits after a long rally in the previous weeks. Notably, Nvidia fell 6.68% during the session, with other chip stocks also closing in the red. Nvidia has been on a solid bullish trend since last year.
Meanwhile, investors were also keen on the Fed’s rate cut outlook. Markets are pricing in two rate cuts this year, with the likelihood of the first in September at 61%. The last major report came on Friday, showing robust business activity in the US. The composite PMI index rose to an over two-year high as the manufacturing and services sectors continued expanding.
However, the report also revealed moderate price increases in May that aligned with the country’s recent inflation figures. As a result, market participants gained confidence that inflation was on a downtrend. Therefore, there is a higher chance the Fed will cut in September.
However, policymakers keep saying they need more evidence that inflation will continue its decline to the central bank’s 2% target. As a result, most have maintained caution as they await more data.
The next big report is the PCE price index, which is expected to reveal moderate price pressures. If this is the case, the likelihood of a cut in September will increase. Lower borrowing costs are bullish for equities as business conditions improve. At the same time, consumers have more money to spend, and demand is growing and boosting businesses.
Elsewhere, there was some caution ahead of the US presidential debate on Thursday. This will start the election season in the US, which will climax in November. A shift in government could mean a change in fiscal policy, impacting businesses.
