- Equities had a bearish week, ending with a cyber outage scare on Friday.
- Markets are pricing in a 93.5% chance that the Fed will cut rates in September.
- Analysts have raised the average annual earnings growth estimate to 11.1%.
Equities ended higher on Monday as risk appetite improved and demand for mega-cap growth stocks increased. Shares of big companies like Alphabet, Tesla, and Nvidia led gains. At the same time, investors were preparing for this week’s US inflation report, which could reshape the outlook for Fed rate cuts.
Nvidia rose by 4.8% after Reuters reported that the company was developing new AI chips for the Chinese market. Experts believe the move in equities on Monday was a rebound after last week’s decline.
S&P 500 weekly change (Source: Bloomberg)
Equities had a bearish week, ending with a cyber outage scare on Friday. A software update by cybersecurity company Crowdstrike caused an outage that affected many sectors of the economy. Moreover, it dampened risk appetite as investors sought safer assets. The S&P 500 and Nasdaq had their worst weeks since April.
The market focus shifted a bit from Fed rate cuts last week. When the week began, there was rate-cut optimism as investors fully priced in a Fed rate cut by September. There was clear evidence that inflation was on a consistent downtrend. However, as the week continued, it became clear that the US economy remains resilient. Data on retail sales came in much better than expected. This led to a slight drop in rate-cut bets. Currently, markets are pricing in a 93.5% chance that the Fed will cut rates down from 100% in September.
All eyes are now on Friday’s core PCE price index report. This inflation gauge will give more clues on when the Fed might start cutting interest rates. Economists expect the monthly figure to increase by 0.2%, bigger than last month’s 0.1%.
Meanwhile, US President Joe Biden dropped his presidential bid, handing the baton to Kamala Harris. This led to a slight drop in bets for a Trump win. Nevertheless, Trump remains well ahead, boosting equities.
Elsewhere, investors were focused on earnings. Analysts have raised the average annual earnings growth estimate from 10.6% on July 1 to 11.1%. So far, earnings have been good, a sign of resilience despite high borrowing costs. This week, the spotlight will be on earnings reports from Tesla and Alphabet. More upbeat reports will likely boost equities.
