A Look at the Day Ahead in U.S. and Global Markets

By Mike Dolan

Record stock market highs have been observed across the globe, although the S&P 500 and Nasdaq have yet to join in. Despite a recent downturn in the artificial intelligence sector following Nvidia’s disappointing results, the broader stock market benefited from robust economic growth, declining inflation, and lower interest rates.

When adjusted for the significant influence of Big Tech giants, the S&P 500 shows that the equal-weighted index has reached record highs with over 10% year-to-date gains. The Dow Jones Industrial Average also closed at a record high on Thursday, with both Germany’s DAX and Europe’s STOXX 600 achieving new peaks on Friday.

This diversification suggests a shift away from an overly concentrated market, reflecting a normalization of market behavior, as volatility metrics return to long-term averages and the traditional inverse relationship between stock and bond returns resumes. For many, this is a more sustainable market dynamic, supported by favorable economic indicators as we approach Labor Day.

Revisions showed that U.S. GDP growth for the second quarter was higher than previously thought; core PCE inflation metrics have decreased, and weekly jobless claims showed little variation. Upcoming releases include the July PCE report, expected to be benign and paving the way for the Federal Reserve’s first interest rate cut of a quarter-point next month, with market forecasts anticipating a total easing of 100 basis points by year-end.

Wall Street stock futures rose again ahead of the month’s last trading day, while Treasury yields dipped slightly from Thursday’s gains. The bond market remains steady following Fitch’s confirmation of the U.S. sovereign credit rating at AA+ with a stable outlook.

Overall borrowing costs are decreasing, exemplified by the 30-year U.S. mortgage rate falling to 6.35%, the lowest since May 2023. Fitch indicated that the fiscal outlook for the U.S. should remain stable regardless of the outcome of the upcoming presidential election, praising structural strengths such as high income and financial flexibility.

Political developments saw Democratic Vice President Kamala Harris entering the presidential race after President Biden’s withdrawal, and polls indicate she is leading against Republican candidate Donald Trump. However, her candidacy has yet to disturb the favorable sentiment in U.S. markets.

In Europe, the inflation and interest rate environment has improved. Eurozone inflation reached a three-year low of 2.2%, approaching the European Central Bank’s 2.0% target, which bolsters prospects for further interest rate cuts in September.

Core inflation in Japan has also accelerated, exceeding the central bank’s target for the fourth consecutive month, supporting expectations for upcoming interest rate hikes.

Conversely, the Chinese yuan saw gains, reaching its highest level in over a year as authorities work to stabilize falling bond yields. Increased dollar selling from Chinese businesses may further elevate the yuan’s value, according to analysts.

In corporate news, AI remains at the forefront as Apple and Nvidia reportedly explore investment opportunities in OpenAI, potentially valuing the company at over $100 billion.

Key Developments to Watch:

• U.S. July PCE inflation gauge, personal income and consumption, Chicago August business survey, final University of Michigan sentiment reading for August; Canada Q2 GDP revision.
• European Central Bank board member Kerstin af Jochnick speaks in Frankfurt.
• U.S. corporate earnings: Marvell Technology (MRVL).