Fed Rate Cut Hope Strengthens and Keeps Stock Market Steady
Stock indices are mostly flat today as the market waits for news of a Fed interest rate cut that seems even more likely now.
Quick overview
- The stock market is experiencing a slight boost as investors anticipate a Federal Reserve interest rate cut next week.
- Major U.S. stock indices have shown minimal movement, with the Dow Jones, Nasdaq, and S&P 500 all slightly up.
- Technology stocks, particularly Tesla and Nvidia, have seen gains despite recent volatility in the AI market.
- Analysts suggest that the AI market may not be in a bubble but rather in a phase of rapid capital spending outpacing revenue.
The stock market is enjoying a small boost from the hope that the Federal Reserve will cut interest rates once again next week at their upcoming policy meeting.
Stocks climbed slightly on Wednesday and remained elevated on Thursday morning as investors expectantly waited for news of a Fed rate cut. That cut is set at an 89% probability of passing, according to the CME FedWatch. Analysts and investors will be watching the job market data closely to see if that key factor is changing ahead of next week’s Fed policy meeting.
When the job market is weakening, the Fed is more likely to issue a rate cut, especially when inflation is not increasing significantly. The inflation rate for the United States rose to 3.0% in September, up from 2.9% but below the expected 3.1%. It has held steady since then, and that creates the kind of economic environment where the Fed is very likely to issue a rate cut.
Stock Market Indices Remain Almost Flat
There is only a little movement from the major U.S. stock market indices for Thursday morning. They have held onto their gains from the previous day and are slightly up today. The Dow Jones rose 0.12% while the Nasdaq Composite added 0.05%, while the S&P 500 gained 0.06%.
Among the biggest gainers today are technology stocks, which have been having a volatile few weeks. Tesla (TSLA) and Nvidia (NVDA) both climbed today, adding 1.45% and 1.22%, respectively. The stock market has treated AI stocks in particular with erratic behavior, but tech stocks have started to rally this week.
The AI market may not be in the bubble that some analysts supposed it was. Instead, it may instead be in an air pocket. Savita Subramanian, who heads up the U.S. equity and quantitative strategy for Bank of America, said that the market is not in a bubble and is in a place where spending capital is happening faster than revenue is coming in.
The problem with the market recently is that there have been billions poured into investment and development and not nearly enough profit to make up for the investment loss. That may catch up with the market so that it slows down and development becomes less important. At some point, companies are going to start worrying more about profits. It is the investors who are worried about that right now, which is why the AI market has suffered stock decline recently.
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