4:15pm: Fed prepares for first rate cut in four years
Stocks were mixed by Monday's close as investors braced for the Federal Reserve's expected first interest rate cut in four years.
The Nasdaq Composite fell about 0.5% due to tech struggles, particularly Apple’s 3% decline over weak iPhone 16 demand, to finish at 17,592. Elsewhere the S&P 500 rose 0.1% at 5,633 and Dow Jones finished 0.6% higher at 41,622.
The Fed’s anticipated 50 basis point cut is seen as a major policy shift ending a lengthy tightening period.
3:25pm: Justifying a 50 bps cut
The debate over the Federal Reserve's next monetary policy move has shifted between a 25-basis point and a 50-basis point rate cut, with market sentiment now firmly expecting a 50-basis point reduction ahead of the September 18 meeting.
The key focus for markets will be how the Fed justifies opting for a larger 50-basis point cut in both its official statement and during Fed Chair Powell's press conference, according to Quincy Krosby, Chief Global Strategist for LPL Financial.
"Any hint of an emergency propelling their thinking would have the dollar weakening at a faster clip against global peers, while a rationale based on inflation easing at a pace that suggests keeping rates significantly higher is no longer warranted should keep the dollar from falling decisively further," Krosby commented.
"Moreover, markets want to see a deeper cut predicated on the inflation easing scenario."
2:35pm: Apple slips
Apple Inc (NASDAQ:AAPL, ETR:APC) shares continued to struggle, down about 2.8% on Monday afternoon after analysts revealed demand for its latest iPhone was weaker than expected.
Bank of America Global Research data revealed shorter shipping times for the iPhone 16 Pro compared to last year’s 15 Pro models as of Monday, signalling weaker demand.
Meanwhile, TF International Securities estimates that first-weekend pre-order sales for the iPhone 16 series were 37 million, down almost 13% from last year’s iPhone 15 series first-weekend sales.
“One of the key factors for the lower-than-expected demand for the iPhone 16 Pro series is that the major selling point, Apple Intelligence, is not available at launch alongside the iPhone 16 release,” it wrote.
Shares of Intel Corp (NASDAQ:INTC, ETR:INL), on the other hand, added 5.5% on the news it has been awarded up to $3 billion from the Biden administration under the CHIPS and Science Act for the Secure Enclave program.
12:45pm: Countdown to Fed decision
US stocks were mixed at noon as investors nervously await the outcome of the Federal Reserve’s rate-setting meeting later this week.
The Dow Jones was nearing a new record, up 0.3% at 41,525. Its last record closing price was 41,563 points on August 31.
“[This] contrasts with a more cautious attitude across most other equity markets, where gains have been limited at best,” IG chief market analyst Chris Beauchamp commented.
“A cautious pruning of risk has been in evidence for most of the day, with the mood soured by reports of poor sales for Apple’s new product.”
The tech-laden Nasdaq traded down 1% at 17,516 points while the S&P 500 was down 0.2% at 5,617 points.
Beachamp highlighted that last week saw a surge in expectations around a 50 basis points rate cut from the Fed in recognition that its window to ease policy is limited by the upcoming presidential election.
“Recession fears have spiked dramatically, and investors have an unnerving feeling that the Fed is firmly behind the curve,” he said.
“A 50 basis points move might help to stop that perception from spreading further, though Powell will have to perform a delicate balancing act to avoid giving the impression that they are more concerned about the near-term outlook.”
11:15am: Rate cuts to begin
The Federal Reserve is widely expected to begin cutting interest rates this week.
UBS expects the Federal Open Market Committee (FOMC) to lower the federal funds rate by 25 basis points (bp) at the upcoming meeting, with Fed Chair Jerome Powell likely indicating this is the start of a series of cuts. The "dot plot" is expected to show projections of three rate cuts this year and five next year, bringing the rate down to 3.4% by the end of 2025.
While inflation remains a concern, Powell is likely to echo his Jackson Hole message that the policy direction is clear, according to UBS.
UBS also projects that August retail and food services sales were affected by declining auto sales and lower gasoline prices, although the control group sales are expected to show healthy gains. After strong consumption in June and July, UBS sees potential for weaker results or revisions in August or September. Additionally, industrial production may get a boost from auto production recovery in August.
Housing starts are also projected to rebound sharply after being impacted by Hurricane Beryl, but existing home sales are expected to decline further.
10:00am: Nasdaq starts in the red
US stocks have had a mixed start, as expected, with the tech-heavy Nasdaq dropping the heaviest.
The Nasdaq Composite index fell 0.5%, with Apple Inc (NASDAQ:AAPL, ETR:APC) having the largest gravitational pull, down 3.2% after a prominent analyst said sales of the iPhone 16 family were down an estimated 12.7% in the first weekend compared to the iPhone 15 last year.
Others in the red on the Nasdaq include Micron Technologies, ARM Holdings, Nvidia and Broadcom as semiconductor firms see another swing in sentiment.
The S&P 500 slipped in opening trades, but after half an hour was just above flat, with financials doing some heavy lifting, including Visa, JP Morgan, with the top risers being Bath & Body Works and Oracle.
The Dow Jones rose 0.5% as Apple is one of only four fallers.
7.55am: Nasdaq drop and Dow climb expected
US stock futures were mixed early on Monday, as traders gear up for a big week of economic updates and a Federal Reserve decision.
S&P 500 futures were flat with just over an hour and a half before the opening bell, with the Nasdaq 100 expected to head 0.3% lower and the Dow Jones 0.2% higher when trading begins.
For the biggest three of the tech giants, Apple futures were down over 2%, Nvidia down 1.3% and Microsoft down 0.2%.
In commodities markets, gold topped the records set last month, breaching $2,585 per ounce as markets prepare for the Fed to begin easing monetary policy for the first time in more than four years.
Oil prices are also up off the 18-month lows reached last week, with WTI up 1% to $69.33 a barrel.
Last week saw US stock indices all in positive territory, rounding off a week of strong gains to complete a turnaround from the previous week's sharp fall thanks to better than expected CPI inflation numbers.
Wall Street had what was its best week of the year, with the S&P rising more than 4% and the tech-fueled Nasdaq nearly 6% as Nvidia rose more than 13% despite a dip on Friday.
Any concerns over the possibility of a "hard landing" for the economy were cast aside by the CPI, says market analyst David Morrison at Trade Nation, "cementing the belief that the Federal Reserve will announce its first rate cut since March 2020 at the end of its two-day meeting this Wednesday".
"Investors appear to be pricing in a Goldilocks scenario of cheaper borrowing costs, with more rate cuts to come, in an economy which shows few signs of a hard landing or recession. If so, then they may prove to be over-optimistic," he said.
Following the CPI update, the CME’s FedWatch tool put the probability of a 25 basis point cut at 87%, this morning it had dropped to 41%, with the probability of 50 basis points now at 59%.