The main averages on Wall Street were closed on Monday in observance of the Labor Day holiday. At the end of the last trading day on Friday, stocks dipped, weighed down partially by declines in artificial intelligence-related names. Sticky personal consumption expenditure price index data also sparked some doubts over just how much impetus the Federal Reserve has to cut rates.
But, despite August being traditionally difficult for stocks, the S&P 500 gained 1.9% for the month, bringing its year-to-date advance to roughly 10% and putting the benchmark index not far from record highs. It was the latest leg higher in what has become an extended recovery in equities since an April swoon fueled by concerns over sweeping U.S. tariffs.
Traders were digesting a ruling from the U.S. Court of Appeals for the Federal Circuit late last week that most of U.S. President Donald Trump’s levies are illegal, and that only Congress held the authority to pass the duties. Trump chided the decision, saying he will appeal to the Supreme Court.
Media reports have suggested that Trump officials have long anticipated that the high court would eventually need to settle the matter. The administration is reportedly confident that the tariffs — and Trump’s push to assert his authority to enact them — will eventually be supported by the court’s conservative majority.
In a note to clients, analysts at Vital Knowledge said the the appeals court decision is “at best neutral” for markets, adding it “won’t come close come close to eliminating Trump’s import taxes, and it just creates more uncertainty for Corporate America as the White House searches for a sturdier legal scaffolding for its draconian trade policy[.]”
Although a Supreme Court ruling against the tariffs may lower the prospect of tariff-related economic disruptions, such a move could herald elevated murkiness over recent trade agreements between the U.S. and its partners, which could need to be renegotiated.
Trump’s tariffs took effect from August, with countries facing levies between 10% to as high as 50%. But a bulk of the tariffs are expected to be borne by local importers, which could underpin U.S. inflation in the coming months.
Uncertainty clouds U.S. interest rate outlook
Uncertainty over U.S. interest rates also remained a point of contention for Wall Street. Last week’s PCE data, which is the Fed’s preferred inflation gauge, showed inflation increased mildly in July as expected, pointing to further stalling in a deflationary trend seen earlier in the year.
Lingering inflation could give the Fed less impetus to cut interest rates. While Fed Chair Jerome Powell had in August signaled that the bank was considering a September rate cut amid some cooling in the labor market, he still flagged risks from persistent price pressures.
Markets were still factoring in a roughly 91% chance the Fed will cut rates by a quarter of a percentage point at its upcoming gathering later this month, according to CME’s FedWatch Tool. A slew of Fed officials are also set to speak this week.
Concerns over the Fed’s independence, amid Trump’s efforts to fire staff at the central bank, have weighed on risk appetite as well. Fed Governor Lisa Cook indicated last week that she will seek legal action over Trump’s efforts to fire her.
August jobs data looms large
Investors are now turning their gazes back to the economic calendar, which will be headlined this week by Friday’s release of the ever-important monthly nonfarm payrolls report.
Analysts have said that the soft or tepid reading for August — which would come after an unexpectedly weak return in July and deep downward revisions to the preceding two months — could further cement bets that the Federal Reserve will ratchet down interest rates at its next policy meeting on Sept. 16-17.
Economists expect the U.S. to have added 74,000 roles, versus in 73,000 in July.
In the meantime, markets will be keeping tabs on other indicators, including a gauge of U.S. manufacturing sector activity on Tuesday from the Institute for Supply Management. The August measure is tipped to come in at 49.0, compared to 48.0 in July yet still below the 50-point mark denoting contraction.
Elsewhere, some earnings are on tap this week, including software firms Zscaler Inc (NASDAQ:ZS) and Salesforce Inc (NYSE:CRM), server chips maker Broadcom Inc (NASDAQ:AVGO), and retailer Dollar Tree Inc (NASDAQ:DLTR).
The $QQQ tech index closed last Friday at 570.40 (down 1.16%). This still leaves us only a ~2% rally away from testing new all-time highs, and the nearest support we should focus on before we can assume any bearish short-term action would be near 560 (would require a bit less than a 2% decline to test this level). Overnight trading and futures point to a rougher start to the week, so perhaps we can brace for some continued volatility. The major directional sentiment determinants today will likely be the economic data releases (as detailed below) as there are no big tech earnings reports. Bitcoin is trading near ~$110k/coin, spot Gold is at record highs near ~$3,550/oz, and spot Silver is roaring higher to ~$41.7/oz.
Uncertainty clouds U.S. interest rate outlook
Uncertainty over U.S. interest rates also remained a point of contention for Wall Street. Last week’s PCE data, which is the Fed’s preferred inflation gauge, showed inflation increased mildly in July as expected, pointing to further stalling in a deflationary trend seen earlier in the year.
Lingering inflation could give the Fed less impetus to cut interest rates. While Fed Chair Jerome Powell had in August signaled that the bank was considering a September rate cut amid some cooling in the labor market, he still flagged risks from persistent price pressures.
Markets were still factoring in a roughly 91% chance the Fed will cut rates by a quarter of a percentage point at its upcoming gathering later this month, according to CME’s FedWatch Tool. A slew of Fed officials are also set to speak this week.
Concerns over the Fed’s independence, amid Trump’s efforts to fire staff at the central bank, have weighed on risk appetite as well. Fed Governor Lisa Cook indicated last week that she will seek legal action over Trump’s efforts to fire her.
August jobs data looms large
Investors are now turning their gazes back to the economic calendar, which will be headlined this week by Friday’s release of the ever-important monthly nonfarm payrolls report.
Analysts have said that the soft or tepid reading for August — which would come after an unexpectedly weak return in July and deep downward revisions to the preceding two months — could further cement bets that the Federal Reserve will ratchet down interest rates at its next policy meeting on Sept. 16-17.
Economists expect the U.S. to have added 74,000 roles, versus in 73,000 in July.
In the meantime, markets will be keeping tabs on other indicators, including a gauge of U.S. manufacturing sector activity on Tuesday from the Institute for Supply Management. The August measure is tipped to come in at 49.0, compared to 48.0 in July yet still below the 50-point mark denoting contraction.
Elsewhere, some earnings are on tap this week, including software firms Zscaler Inc (NASDAQ:ZS) and Salesforce Inc (NYSE:CRM), server chips maker Broadcom Inc (NASDAQ:AVGO), and retailer Dollar Tree Inc (NASDAQ:DLTR).
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