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Market Overview – Slight Decline, All Eyes on the Fed
U.S. stocks ended marginally lower Tuesday as traders positioned ahead of the FOMC rate decision.
- Data strength: August retail sales rose 0.6% MoM (vs. 0.2% expected), marking a third consecutive beat. Core retail sales also surged YoY, reinforcing the “Goldilocks economy” narrative of strong growth with contained inflation.
- Rate-cut consensus: Fed funds futures fully price at least a 25 bp cut on Wednesday. Historical data show: when the Fed cuts with the S&P 500 within 1% of an all-time high, the index rises 70% of the time that day (avg +0.51%), 57% of the time over 6 months (avg +0.62%), and delivers ~14–15% gains over 12 months, implying S&P 7,465–7,600 by Sept 2026.
Valuation & Dollar Risks
Valuation extremes: S&P 500 forward P/E hits 37.5x, the third highest in history (behind 2000 and 2021) and above the 2000 peak, per BofA data.
Dollar depreciation “dual engine”:
- A weaker USD attracts global capital into U.S. equities and erodes Treasury appeal.
- Multinationals gain FX tailwinds, lifting earnings and risk appetite.
Fund Flows & Positioning
- Cash at decade low: BofA survey shows cash levels at 3.9%, the most bullish since February; 58% of managers call equities overvalued yet remain overweight.
- Rotation: Managers cut EM/Europe exposure, closed U.S. short positions, and added tech, banks, healthcare. UnitedHealth’s recent strength reflects this trend.
- Seasonal caution: Corporate buybacks slow late September; leveraged positions may amplify volatility if post-cut turbulence emerges.
Stock Highlights
AI Leaders
- BBAI: +16%, benefiting from AI infrastructure migrating to applications.
- Google (GOOG): Market cap topped $3T; Gmail overtook X (Twitter) on App Store; pledged £5B UK AI investment.
- Meta (META): Hosts annual tech conference Sept 17, unveiling new AI glasses.
Tesla (TSLA)
- Continues rally as Elon Musk announced meetings next week on AI, robotics, and production. Analysts warn: “Tesla trades on faith, not fundamentals—shorting is dangerous.”
Oracle (ORCL)
- +1.5% on reports of a U.S.–China TikTok deal giving a new consortium—Oracle, Silver Lake, and Andreessen Horowitz—80% control, with ByteDance licensing the algorithm and Oracle managing data.
Wolfspeed (WOLF)
- Spiked 18% on 200mm SiC commercialization news, then reversed to –16.5% as early buyers took profits.
Other Movers
- OC Nuclear: 3-day rally after U.S. Energy Secretary boosted nuclear outlook as stable AI power source.
- RKLB: –12.6% on $750M share sale, following a $500M offering in March.
- GILT: Surged from $5.5 to $11.28 since June purely on speculation.
- Travel/Cyclicals: Cruise lines and airlines sold off on recession fears and rising fuel/maintenance costs.
Outlook – Fed Decision in Focus
Markets await Wednesday’s FOMC statement, Powell’s press conference, and the dot plot for signals on additional 2025 cuts.
- A message of “one more cut this year + early-2026 easing” could extend the rally.
- Ambiguous guidance risks sharp volatility, especially with $5T options/futures expiring (“Triple Witching”) this week.
Investors are advised to stay patient and avoid chasing momentum.
