By: Fiona Cincotta, Senior Market Analyst
With the odds of an October Federal Reserve rate hike down to 20% from around 70%, the S&P 500 and Nasdaq 100 have pushed to record closing highs on the back of AI-driven tech gains. U.S. inflation data and the start of Q3 earnings season now shape whether that tech-led rally in stocks keeps its momentum, and a cooler inflation print can help propel stocks higher. Markets still price in a more than 85% probability of a December rate hike, so the inflation data carries real weight for equities. Elevated Treasury yields add a further layer of pressure, weighing on demand for riskier assets.
Fiona Cincotta, StoneX Senior Market Analyst, has spent more than 15 years trading and analyzing U.K., European and U.S. markets, combining fundamental and technical analysis. Her coverage spans equities, forex, commodities and crypto assets, along with the macroeconomic data and central bank decisions that move them.
Q3 earnings season is the next test for the AI chip rally that carried the Nasdaq 100 and S&P 500 to record closing highs. According to Cincotta, "This is very much a rally that we've seen in semiconductors, which have been gaining strength and optimism over chips used for AI infrastructure." Nvidia remains firmly in focus as its market capitalization climbs toward a key milestone. Notably, the less tech-heavy Dow Jones Industrial Average is trading in a descending channel, confirming how concentrated the stock rally has become. For equity investors, tech sector earnings therefore carry outsized weight for the direction of the major U.S. indices.
Federal Reserve rate hike expectations have shifted sharply, with the odds of an October hike falling to 20% from around 70% after weaker economic data. December remains live, as markets still price in a more than 85% probability of another hike before year end. The minutes from the September meeting, where the Federal Reserve raised rates by 25 basis points, are the next marker, and Cincotta points out that markets want "to see how supported that decision was, any sense that there was division among the Fed policymakers." That is where U.S. inflation data comes in, as a cooler print can help propel stocks higher. "The bar for hiking rates again in December, for example, would be significantly higher," Cincotta says of a divided committee.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Fiona Cincotta, StoneX Senior Market Analyst
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U.S. inflation data and Q3 earnings season are the next tests for the AI chip rally that lifted the S&P 500 and Nasdaq 100 to record highs. October rate hike bets have faded, but markets still price in a strong chance of a December Federal Reserve hike.
Record highs on the Nasdaq are masking a bond selloff that runs from U.S. Treasuries to UK gilts. Fiscal worries in Europe and the UK are pushing yields higher and weighing on the euro and the FTSE 100, even as U.S. rate hike expectations fade.
Bond markets have swung from expecting rate cuts to pricing further hikes, as elevated oil and commodity costs keep inflation pressure alive. The shift is pushing up Treasury yields and exposing a U.S. stock market that leans more and more on a handful of tech and AI names.
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