Key points:

  • After a sharp rise triggered by an interest rate cut, the market stabilized.
  • News of a potential deal boosted Intel shares and contributed to Dow Jones’ growth.
  • Historically, rate cuts have positively impacted the market, but the current overvaluation raises concerns.

By the end of Friday’s trading, the U.S. stock market showed minor changes. After a significant rise in the previous session, driven by the Federal Reserve’s decision to raise interest rates, investors took a wait-and-see approach. Nonetheless, the positive performance of Nike shares helped the Dow Jones Industrial Average hit a new record high.

The Dow Jones Industrial Average gained 38.17 points (0.09%) and closed at 42,063.36 points. Meanwhile, the S&P 500 dropped 11.09 points (-0.19%) to 5,702.55 points, and the Nasdaq Composite lost 65.66 points (-0.36%), closing at 17,948.32 points.

Will there be another rate cut this year?

Stock prices briefly stabilized after a speech by Federal Reserve Chair Christopher Waller. His remarks strengthened investors’ expectations of a more significant rate cut at the November Fed meeting. Earlier this week, the central bank had already cut the rate by 50 basis points.

However, Waller’s stance was not as clearly echoed by his colleague, Fed Governor Michelle Bowman, who expressed a preference for a less aggressive rate cut at this stage.

“The market continues to adjust to new conditions, as not all participants expected such a significant rate cut. It’s clear that a recalibration of expectations is happening,” noted Sid Vaidya, Chief Wealth Strategist for the U.S. at TD Wealth.

According to the CME FedWatch tool, investors are fully pricing in at least a 25 basis point rate cut in November, with the probability of a more substantial 50 basis point cut estimated at 48.9%.

Historically, stocks have performed well during periods of interest rate cuts. However, the current market outlook appears less optimistic. The valuations of the S&P 500 significantly exceed its long-term average, which may indicate market overvaluation.

Intel-Qualcomm talks spurred Dow’s growth

After a sharp daily rise noted in mid-August, key indices showed moderate dynamics for most of the trading session, but still finished the week with gains exceeding 1%.

The utilities sector showed the most significant growth, reaching record highs and outperforming other S&P sectors by 2.69%. The sector’s leader was Constellation Energy, whose shares rose 22.29% following an agreement with Microsoft to develop the Three Mile Island nuclear power plant.

Intel shares supported the Dow, closing up 3.31% amid reports of a potential acquisition of the chipmaker by Qualcomm.

Meanwhile, FedEx shares fell 15.23% after revising its full-year revenue forecast, causing the Dow Jones Transport Index to drop 3.53%, the largest daily decline since late April 2023.

Nike shares jumped 6.84% after the company announced that former senior executive Elliott Hill would return to replace John Donahoe as CEO.