What Happened Last Week
- Fed Cuts 25 Basis Points: The Fed lowered interest rates by 25 bps, with one voting for a larger cut
- Nvidia’s Stake in Intel: Tech stocks got a boost on news that Nvidia (NVDA) took an equity stake in Intel (INTC).
- Trump and Xi Speak: The leaders spoke on Friday and made progress toward a TikTok deal.
What We’re Watching This Week
- Inflation Data: The Personal Consumption Expenditure (PCE), Expenditures Index (PCE), the Fed’s preferred inflation measure, will be released on Friday.
- Fed Speakers: Several Fed members will speak on their economic views, including Chair Powell and Stephen Miran, the lone dissenter from last week’s meeting.
- Regional Purchasing Managers’ Indexes (PMIs): These surveys, published on Tuesday, will provide a timely update on how businesses are viewing the economic outlook.
Investment Management Team’s Views
The Fed delivered on expectations and cut rates by 25 basis points (bps), with one dissent from Stephen Miran, who called for a 50 bp cut. Takeaways leaned slightly hawkish, with Powell calling the cut “insurance,” echoing 2019’s shallow cycle, and noting no “risk-free path” ahead. In equities, the passing of the event risk and stronger-than-expected retail sales data powered the S&P 500 and NASDAQ 100 to fresh all-time highs. Tech stocks got a boost from news that Nvidia was taking an equity stake in Intel and better-than-expected initial demand for Apple’s latest iPhone.
While tech stocks powered the index to new highs, the average S&P 500 stock was only a little better than flat last week, and small-caps lagged the broader market. Despite the Fed’s cut, higher bond yields weighed on non-tech and rate-sensitive sectors, which may be set to continue absent further weakness in the economic data. In our view, the market is likely to weather higher interest rates as long as growth remains robust, which is what the Fed’s forecast last week suggested and what the Atlanta Fed projections for third-quarter GDP currently show.
While the market has been focused on Fed policy and some new excitement in the AI theme, two potentially important policy developments have been percolating in the background. On Friday, U.S.-China relations seemed to thaw, with Donald Trump and Xi Jinping speaking via phone. The leaders advanced a deal for U.S. control of TikTok, and agreed to meet at a Korean summit next month. Chinese equities, which have helped buoy international stocks over the last few weeks, responded positively to the prospects of a deal, although broad cyclicals and non-U.S. markets as a whole don’t appear to be pricing in an upswing in global growth. Domestically, the likelihood of a government shutdown increased as lawmakers failed to reach a deal to fund the government past the end of this month. While investors seem numb to domestic political risk, a shutdown could briefly interrupt the market’s strong momentum.