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Dow Jones, Nasdaq, S&P 500 weekly preview: Wall Street divided on FOMC decision

Published 2024-09-16, 08:10 a/m
© Pavlo Gonchar / SOPA Images/Sipa via Reuters Connect
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Investing.com -- Stocks rose higher on Friday, with both the S&P 500 and Nasdaq Composite marking their best weekly performance of 2024 as investors await the upcoming Federal Reserve meeting.

The S&P 500 gained 0.54%, closing at 5,626.02, just shy of its record high from July. The Nasdaq Composite, which is heavily weighted in tech stocks, increased 0.65%, finishing at 17,683.98. Both indexes logged their fifth consecutive day of gains. Meanwhile, the Dow Jones Industrial Average rose 297.01 points, or 0.72%, to close at 41,393.78.

Investors continued to show strong interest in mega-cap tech and semiconductor stocks, which contributed to this week’s rally following a period of underperformance in the sector.

For the week, the S&P 500 climbed 4%, while the Nasdaq surged 5.9%, marking the strongest weekly gains of the year for both indexes. The Dow also saw a 2.6% rise over the same period.

FOMC preview: What economists expect

Looking ahead to this week, all eyes are on the Federal Reserve’s policy meeting set for September 17-18, where a 25 basis point rate cut is widely expected. The Fed’s current target rate stands between 5.25% and 5.5%.

However, economists on Wall Street remain divided about the magnitude of the first rate cut.

Those at JPMorgan (NYSE:JPM) believe Powell and his team should recalibrate the policy rate lower by 50 basis points (bp) “to adjust for the shifting balance of risks.”

“What the FOMC will do is less clear, but we’re sticking with our call that they will do the “right” thing and cut 50bp,” they added.

JPMorgan anticipates the median dot for this year to be 100 basis points lower than the current rate of 5.375%, signaling two additional 25 basis point cuts during the final two meetings of the year.

Looking ahead to next year, they expect the median dot to indicate a further 150 basis points of rate reductions. The projections for 2026 and 2027 are expected to remain close to the longer-run rate of 2.75% to 3%. If the Fed opts for a more cautious approach and cuts by 25 basis points next week, the median dot for this year would likely reflect only 75 basis points of easing, economists highlight.

“With a 50bp cut, we expect Powell will optimistically convey that they are preserving the soft landing,” economists note. “With a 25bp ease, we would expect his tone to indicate a readiness to promptly pick up the pace on any further signs of labor market softening.”

Meanwhile, Nomura economists think that a 25 bp rate cut at the upcoming meeting is the “most likely” scenario, followed by a further 50bp worth of cuts next year.

In addition to the FOMC meeting, key economic events this week include Tuesday’s retail sales and industrial production reports, followed by Thursday’s release of initial jobless claims data.

What analysts are saying about US stocks

Evercore ISI: “If market pricing remains uncertain into Wednesday, whatever the Fed decides will cause volatility up, down or both ways in stocks – You can’t split the difference.”

“The market reaction in USDJPY, whose Yen strength in August in response to the BoJ hike and weaker U.S. economy was a proximate cause of the historic 8/5 VIX Spike, is another unknown and potential pressure point. Counterintuitively, a 50bp cut could (stress could, as Uncertainty rules) result in USDJPY strength below the critical 140 level and be a headwind for stocks, while 25bp could have the opposite effect.”

Citi: “We maintain our ongoing view that either candidate’s policy platforms are US equity negative, but notably in a “sweep” context. We mark the Harris platform as incrementally more negative (-4% to -6%) vs the Trump platform (0% to -4%). This is mostly a function of the direct implication of higher corporate tax rates in a Harris outcome. A split congress with either candidate mitigates most of the nearer term risk to fair values.”

Goldman Sachs (NYSE:GS): “The trajectory of growth is a more important driver for stocks than the speed of rate cuts. The offsetting valuation impact of higher bond yields and better growth expectations imply limited scope for P/E expansion. With multiples flat, EPS growth will lead the S&P 500 modestly higher. Our year-end 2024 S&P 500 price target remains 5600. Our rolled 6-month and 12-month price targets are 5700 and 6000.”

Vital Knowledge: “The tenor of fundamental news flow remains supportive for equities, including resilient domestic growth, disinflation, monetary easing, and solid earnings. Elevated valuations are the main obstacle facing stocks. Bottom Line: the consensus assumes the SPX will stay choppy and fail to set new highs (at least until after the election), but if fundamental news flow stays on the present trajectory, the index could easily break- out on the upside well before 11/5.”

Wedbush: “We believe the stage is set for tech stocks to move higher into year-end and 2025 in our opinion as the Fed and Powell kick off its rate cutting cycle this week, macro soft landing remains the path, and tech spending on AI remains a generational spending cycle just starting to hit the shores of the tech sector.”

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