Stocks Reverse Early Losses
U.S. stocks rebounded on Wednesday, reversing early losses as investors reacted to the latest inflation data and analyzed the impact of the first presidential debate. The major indexes saw significant gains by the end of the trading session.
The S&P 500 rose more than 1%. The tech-heavy Nasdaq Composite surged, gaining nearly 2.2%. Meanwhile, the Dow Jones Industrial Average added 0.2%, with an increase of more than 100 points. Nvidia led the charge among tech stocks, surging more than 8%.
Stocks Reverse Early Losses – Inflation Data Boosts Market Sentiment
Investors had eagerly awaited August’s consumer price index report, hoping it would provide clarity on the Federal Reserve’s next move. The data revealed that headline inflation dipped to its lowest level in over three years. This came as a relief to markets, which had been concerned about rising prices.
However, core inflation, excluding food and gas prices, ticked up by 0.3%. This exceeded economists’ expectations of a 0.2% increase. The higher-than-expected rise in core inflation left some uncertainty regarding the Federal Reserve’s interest rate decision.
Smaller Rate Cut Anticipated
Despite the rise in core inflation, market participants are now expecting a smaller rate cut from the Fed at its next meeting. Previously, traders had been divided over whether the Fed would cut rates by 0.5% or 0.25%. Now, with the latest inflation data in hand, the odds of a 50-basis-point cut have fallen to just 15%, down from 44% last week, according to the CME FedWatch Tool.
The data suggests that the Fed is more likely to opt for a 0.25% rate reduction, as it aims to strike a balance between supporting economic growth and controlling inflation. The next Fed meeting is set to take place next week.
Stocks Reverse Early Losses – Tech Stocks Lead the Rally
Tech stocks were the standout performers of the day, with Nvidia leading the way. Shares of the chipmaker soared by over 8%, following a presentation by CEO Jensen Huang at a Goldman Sachs conference. Huang’s comments on Nvidia’s role in the future of artificial intelligence (AI) and cloud computing fueled optimism among investors.
Other tech giants, including Apple and Microsoft, also posted strong gains, contributing to the Nasdaq’s outperformance.
Market Reaction to Presidential Debate
The presidential debate between Donald Trump and Kamala Harris was closely watched by investors, though it provided few details on policies that could impact markets. The candidates touched on key topics such as tariffs, taxes, and regulation, but the exchanges were light on specifics.
Investors are particularly concerned about the potential economic policies of the next administration, as they could have wide-ranging implications for the markets. However, the debate did not offer much clarity, leaving many questions unanswered.
GameStop Shares Sink
While tech stocks surged, GameStop saw a sharp decline. The video game retailer’s shares plummeted nearly 12% after the company reported disappointing quarterly results. GameStop missed revenue expectations and announced plans to issue 20 million new shares. The announcement of the share offering raised concerns about dilution, which weighed heavily on the stock.
Looking Ahead: Fed Decision Looms
As the market heads into next week, all eyes will be on the Federal Reserve. The central bank’s decision on interest rates will likely set the tone for the remainder of September. Investors will also be watching for any signs of changes in the Fed’s outlook on inflation and economic growth.
For now, the market has embraced the latest inflation report, with tech stocks driving the recovery from early losses. However, uncertainty remains as traders continue to debate the size of the upcoming rate cut. The economic landscape is still evolving, and the Fed’s actions will be critical in shaping market performance in the coming weeks.
Technical Analysis
The stock markets have shown positive momentum in the course of the year. For example, the Dow Jones Industrial Average stands at 40,861.71, reflecting an impressive gain of 6,197.99 points, or 17.88%, over the past year. Similarly, the S&P 500 has risen to 5,554.13, with an increase of 1,066.67 points, translating to a remarkable 23.77% growth in the same timeframe.
Currently, there are no signs indicating a major reversal in these trends. It appears that the market is on a recovery path following a recent correction. However, analysts have noted the potential formation of a triple top, which could signal a bearish pattern. Therefore, investors are advised to exercise caution and closely monitor market developments to make informed decisions.
Chart by Trading View
