Indexes surge as Adobe falls, Boeing slumps: How is this possible?

The main U.S. stock market indices ended the trading session on Friday higher. Investors focused on the possibility of an interest rate cut by the Federal Reserve, which could be announced as early as next week. Small-cap stocks, whose profitability is especially sensitive to changes in monetary policy, looked particularly confident against the backdrop of these expectations.

Expectations regarding the size of the upcoming Fed rate cut have fluctuated throughout the week. By the end of Friday, the chances of a 50 basis point cut had increased significantly: if at the beginning of the week this scenario was estimated at 28%, then on Thursday it almost doubled to 49%, according to CME FedWatch data. At the same time, the probability of a more cautious step - a 25 basis point rate cut - remained at 51%.

One of the respected experts, former head of the Federal Reserve Bank of New York Bill Dudley, spoke out in favor of a significant easing of the Fed's policy. He emphasized that the situation really is conducive to a rate cut of 50 basis points, noting this in his statement on Thursday evening.

At the same time, analysts such as Jim Baird of Plante Moran Financial Advisors note that the Fed is under pressure. At the meeting scheduled for September 18, a difficult decision will be considered - to go for more aggressive easing of monetary policy or to choose a more cautious path.

In stock markets on Friday, renewed hopes for a big rate cut gave confidence to large companies. But the biggest optimism was seen among smaller companies, reflected in the Russell 2000, which soared 2.5% in a day and is up 4.4% for the week.

Jim Baird, chief investment officer at Plante Moran Financial Advisors, said the rise in small-cap stocks reflects investors' belief that a 50 basis point rate cut does not signal an imminent economic downturn. "If the market had viewed the Fed's actions as a belated attempt to prevent a recession, we would not have seen the rally in risk assets like small caps," Baird said.

Baird also added that the rise in riskier stocks is indicative of market sentiment: "We've seen significant gains in the riskiest areas of the stock market today."

According to Jason Pride, head of investment strategy at Glenmede, Friday's strong rally was largely due to comments from former New York Federal Reserve Chairman Bill Dudley. His comments about the possibility of a 50 basis point rate cut were a key driver for investors.

However, according to a survey released Friday, US consumer sentiment improved in September. The decline in inflation has contributed to this optimism, although Americans remain cautious in their outlook for the future ahead of the November presidential election.

Dow, S&P and Nasdaq on the rise

The main US stock market indexes ended the trading session with gains on Friday. The Dow Jones Industrial Average added 297.01 points, or 0.72%, to end at 41,393.78. The S&P 500 rose 30.26 points, or 0.54%, to end at 5,626.02. The Nasdaq Composite also showed strong gains, rising 114.30 points, or 0.65%, to end at 17,683.98.

All three major indexes ended the day near their two-week highs, underscoring the overall optimism in the market. For the week, the S&P 500 rose 4.02%, while the Nasdaq rose an impressive 5.95%, marking their best weekly performance since early November. The Dow was also up 2.60% for the week.

Despite the overall positive sentiment, not all companies posted gains. Adobe shares ended the day down 8.5%. Investors were disappointed by the Photoshop maker's forecast for lower fourth-quarter profit than analysts had expected.

Boeing shares were also under pressure, falling 3.7%. This happened amid a strike by workers at a plant on the West Coast of the United States, who refused to accept an offered contract, thereby halting production.

Chinese e-commerce company PDD Holdings fell 2.4%. This fall was caused by the news that the Biden administration is introducing new restrictions on duty-free imports of low-value goods into the United States. These measures could affect products that are imported at a reduced value - below the $800 threshold set by the "de minimis" rule.

The index gains couldn't completely hide the problems of individual companies. However, ending the week with such a strong performance shows high levels of investor confidence in the near term.

Uber shares soared 6.4% after the company announced a partnership with Waymo, Alphabet's self-driving division. As part of the partnership, Uber plans to launch a self-driving service in cities such as Austin, Texas, and Atlanta. This is a major step for Uber in developing autonomous technology, which has sparked enthusiasm among investors.

On the New York Stock Exchange (NYSE), the vast majority of companies showed gains. The number of stocks that showed positive dynamics outnumbered those that ended the day in the red by a ratio of 5.54 to 1. The stock exchange recorded 653 new highs and only 27 lows, indicating significant optimism among market participants.

The picture is similar on the Nasdaq: growth stocks outnumbered decliners by a ratio of 3.19 to 1, with 116 new yearly highs and 54 lows. The S&P 500 also recorded 60 new 52-week highs and only one new low.

US stock markets saw 10.15 billion stock trades during the session, slightly below the average for the past 20 trading days (10.78 billion). However, this indicates high activity among market participants in anticipation of the most important economic events of the week.

After 30 months of tight monetary policy aimed at containing inflation that has accelerated since the pandemic, the US Federal Reserve is preparing for a long-awaited easing. The market is expecting interest rate cuts this week, and the big question is how drastic the move will be.

Add to that the tensions on the international stage: Saturday's weak economic data from China, and Sunday's announcement of an FBI investigation into a second assassination attempt on Republican presidential candidate Donald Trump, set the stage for a week of news that will be key to future US economic policy.

Investors are eagerly awaiting the outcome of the Fed meeting, as its decision could have a significant impact on stock market action and sentiment.

Investors are focused on growing speculation that the Federal Reserve will announce a 50 basis point rate cut at its meeting on Wednesday, rather than a more cautious 25 basis points. The increased attention to this scenario is due to media reports last week that hinted at a possible policy reversal. Despite the fact that Fed officials are keeping a "quiet mode" ahead of the important meeting, this has not stopped the market from actively discussing and predicting.

Global markets were quiet on Monday, partly because trading floors in Japan and mainland China were closed for holidays. However, in the US, the dynamics of the end of last week, when Wall Street indices came close to their record levels, continued to have an impact. Stock futures showed strong gains, with small companies reflected in Russell 2000 index futures particularly strong.

Fed rate futures are currently pricing in a 40 basis point easing. Moreover, the chances of a 50 basis point rate cut are estimated at more than 60%. Equally important, markets are already pricing in further rate cuts, up to 120 basis points by the end of the year, which could be an important signal about the regulator's upcoming decisions.

Short-term Treasury yields have shown a noticeable decline, falling below 3.55% for the first time in two years. This has led to a significant compression of the yield curve between the two-year and ten-year bonds, with the gap reaching its most positive value since June 2022, at almost 9 basis points. Such dynamics have also put pressure on the dollar, which began the week weaker, as it bore the brunt of the decline in yields.

The market is frozen in anticipation of the key event of the week — the Federal Reserve's decision. If the Fed decides to ease policy more aggressively, this could set a new direction for further market movement.

The US dollar continues to decline amid speculation around the upcoming Fed decision. The dollar index (DXY) fell sharply, again approaching its lowest levels in a year. Investors are still focused on the likelihood of significant monetary easing, which is putting pressure on the American currency.

The MSCI Emerging Market Currency Index added 0.25%, reaching a record high. Amid the weakening dollar, other currencies are gaining support. Thus, the Japanese yen strengthened to 140 per dollar for the first time since July 2022, amid expectations of a possible rate hike by the Bank of Japan. This move highlights the growing differences in the monetary policies of the world's leading economies.

Sterling also rose, with investors speculating that the Bank of England may hesitate to make a second rate cut this year when it meets on Thursday. Uncertainty is heightened by expectations for the first budget of the new UK Labour government, due to be announced next month.

Economic data from China over the weekend adds to the pessimism about the country's economy. Industrial production growth slowed to a five-month low in August, while retail sales and new house prices also fell short of expectations, strengthening the case for more aggressive government stimulus measures that experts say are still insufficient.

Weak data not only dampens investor expectations, but also makes China's 5% growth target more difficult to achieve. Bank lending figures released on Friday also came in below forecasts, further highlighting the weakness of domestic demand and the need for more economic support from the authorities.

Amid a weakening dollar, global markets are showing mixed dynamics. On the one hand, the US currency is losing ground, giving other players an opportunity to strengthen, while on the other hand, economic worries from China are adding uncertainty to the global picture. Investors continue to closely monitor developments, awaiting decisions by the central banks of the world's leading economies.

On Monday, Hong Kong's Hang Seng index showed growth despite the general weakening of global markets. At the same time, the offshore yuan strengthened against the weaker US dollar, which supported the positive dynamics on Asian markets. Amid global uncertainty, China and Hong Kong continue to show signs of resilience, which inspires optimism in investors awaiting further actions by the authorities to support the economy.

Political tensions in the United States are heating up as the presidential election approaches. Over the weekend, the Secret Service foiled an assassination attempt on Donald Trump while he was playing golf in West Palm Beach, Florida. The FBI called it an apparent assassination attempt on the former president.

After the recent TV debates, Trump has fallen significantly behind Democratic candidate Kamala Harris in the betting markets. Harris, albeit by a slim margin, remains the favorite to win the upcoming November election, which could have a significant impact on the country's future economic and political prospects.

European stock markets were relatively stable on Monday. Indexes were little changed, reflecting the general mood of investors awaiting important economic and political decisions.

Despite the calm in the markets, the news of the deal has attracted the attention of investors. Shares of the French company Rexel, listed on the Paris Stock Exchange, jumped 12.6% after it was announced on Sunday that it had rejected a $9.4 billion takeover offer from QXO, headed by famous billionaire Brad Jacobs. The deal demonstrated a high valuation of the French business, which has attracted keen interest from traders.

Global markets continue to be in a state of anticipation, reacting to political and economic events. From assassination attempts on Trump to important corporate deals, events are moving quickly. Meanwhile, Asian markets are showing optimism amid a weaker dollar, and Europe remains stable.