U.S. equity markets showed signs of weariness but overall resilience on Friday, with the Dow Jones Industrial Average slipping while the S&P 500 and Nasdaq Composite held onto gains near record levels. Investor attention is squarely focused on next week’s Federal Reserve meeting, where expectations are strong that policymakers will deliver the first interest rate cut of the year.
- The Dow Jones Industrial Average fell approximately 0.4%, losing some of the momentum after its historic surge past the 46,000-point threshold earlier in the week.
- The S&P 500 remained mostly flat, up a marginal 0.03%, reflecting cautious investor sentiment.
- The Nasdaq Composite outperformed today’s peers, gaining about 0.4-0.5%, buoyed by strength in major technology and innovation-oriented stocks.
Though the indexes are diverging today, all three remain in strong shape for the week, with the Dow and S&P having logged fresh record highs in recent days.
1. Rate Cut Expectations
Markets are increasingly confident that the Federal Reserve will ease monetary policy when its Open Market Committee meets next week. Inflation data, especially wholesale and producer price indexes, have shown signs of cooling. Meanwhile, labor market indicators have painted a mixed picture, with some softness, but not yet enough to unnerve investors.
Lower rates tend to benefit growth sectors — notably tech — which helps explain why the Nasdaq has been able to hold steadier gains. Financials and industrials, more sensitive to interest rate structure, are watching closely for how steep and how fast any rate cuts might come.
2. Strong Tech and AI-Related Sentiment
Technology stocks, especially those exposed to artificial intelligence, continue to attract buyer interest. Nvidia, Microsoft, and Oracle are among the names that have recently driven rallies in that space. Oracle’s surge on AI cloud contract announcements remains among the most prominent catalysts.
These gains are helping to offset weaker showings elsewhere, particularly in more rate-sensitive sectors. As long as investors believe inflation remains under control, tech and AI will likely remain a strong undercurrent in market support.
3. Economic Data: Inflation & Labor
- Inflation: Recent wholesale / producer price data showed signs of easing, which has added fuel to the argument that rate cuts are coming. However, consumer inflation (services, housing, etc.) remains under scrutiny.
- Labor Market: Some metrics have cooled, with lower job growth in certain segments and rising unemployment claims in others. While not alarming yet, these data lend credence to expectations that the Fed might act to ease policy.
- Tesla saw a strong rebound, rising about 6% after recent volatility. Optimism around self-driving, robotics, and energy businesses appears to be helping revive investor interest.
- Warner Bros. Discovery extended gains on takeover talk from Paramount Skydance, attracting speculative interest.
- Super Micro Computer also posted gains as it began shipping systems powered by Nvidia’s Blackwell Ultra chips, tapping into the rising demand for AI infrastructure.
On the sector side, technology outperformed, as expected. Service sectors, healthcare, and materials also showed strength. Financials were mixed — benefiting from rate cut expectations in some corners but hurt in others by compression in yield spreads.
- Fed Meeting Outcomes: The upcoming Federal Reserve decision will be a major inflection point. The size of any rate cut (25 basis points vs. larger), the guidance about follow-on cuts, and commentary on inflation and labor will be essential. Markets are vulnerable to disappointment.
- Inflation Surprises: If core inflation, especially in services or rents, comes in hotter than expected, it could push the Fed to maintain tightening longer, which might weigh heavily on valuations in growth stocks.
- Macro Headwinds: Global supply chain disruptions, geopolitical risks, or trade policy shifts could still catch markets unprepared. Also, excesses in speculative trades around AI may be exposed if earnings don’t back up expectations.
- Earnings Reports: As the Q3 earnings season ramps up, companies with weaker results or poor forward guidance could upset the balance, especially in sectors where valuations are already extended.
For the week, all three indices are set to log gains, though modest relative to their recent runups. The Dow and S&P have made several record closes in the past few sessions, while the Nasdaq’s tech momentum has helped carry it the furthest in percentage terms year to date.
Year-to-date, the Nasdaq is leading the pack in total returns among the three, benefitting heavily from investor appetite for AI, cloud, and growth sectors. The S&P 500 has also posted healthy gains, with more balance across different sectors. The Dow has lagged slightly in percentage gains but is strong in absolute terms, bolstered by large gains in select industrial, financial, and blue-chip names.
Today’s tape shows markets at a crossroads. Optimism over impending rate cuts and solid tech leadership are keeping the S&P 500 and Nasdaq near all-time highs. Still, the Dow’s drop serves as a reminder that not all sectors are equally favored under the current macroeconomic backdrop. As the Fed meeting approaches, investor sentiment is likely to hinge on inflation metrics, labour market strength, and the tone from monetary authorities. For now, bulls hold an edge — but the margin of error appears narrow.
