On Friday, the three major US equity benchmarks finished in positive territory, yet all posted weekly losses, with the Dow tumbling 1.57% for the week, the S&P 500 sliding 0.58%, and the Nasdaq shedding 0.66%. Following the release of hotter-than-expected core inflation data, interest rate swap markets have further boosted expectations for a Federal Reserve rate hike, with pricing now indicating a 90% probability of a move next week and fully pricing in two hikes for the year.

David Rees, global head of economics at Schroders, commented, "The Fed is already behind the curve. The Fed can choose to hike next week, making the rise in short-term borrowing costs orderly; or it can hold steady, but then it risks an uncontrolled rise in long-term borrowing costs."

US Markets

At the closing bell, the Dow Jones Industrial Average climbed 509.19 points, or 0.98%, to settle at 52,573.29. The S&P 500 advanced 65.28 points, or 0.86%, closing at 7,656.98. The Nasdaq Composite gained 251.32 points, or 0.96%, to finish at 26,333.04.

In corporate news, Qualcomm (QCOM.US) rose 2.88%, Intel (INTC.US) gained 2.61%, SpaceX (SPCX.US) advanced 2.04%, and Amazon (AMZN.US) increased 1.94%. On the downside, SanDisk (SNDK.US) fell 3.5%, Oracle (ORCL.US) declined 1.82%, and Micron Technology (MU.US) slipped 0.22%. The Nasdaq Golden Dragon China Index edged up 0.4%, with Baidu (BIDU.US) rising 0.89% and Alibaba (BABA.US) gaining 0.68%.

European Markets

Major European indices closed broadly higher. The UK's FTSE 100 rose 0.39%, France's CAC 40 gained 0.78%, Germany's DAX 30 advanced 0.82%, and Italy's FTSE MIB climbed 1.36%.

Asian Markets

Japan's Nikkei 225 fell 1.93%, while South Korea's KOSPI declined 1.76%.

US Dollar Index

The dollar index, which measures the greenback against six major currencies, inched up 0.07% to close at 99.122 in late trading. In the New York currency market, the euro traded at $1.1596, down from $1.1613 in the previous session, while the British pound fetched $1.3525, up from $1.3513. Against the yen, the dollar weakened to 153.72 from 154.32, and versus the Swiss franc, it strengthened to 0.8166 from 0.8129. The dollar also rose against the Canadian dollar to 1.3865 from 1.3830 and gained on the Swedish krona to 9.7044 from 9.6782.

Cryptocurrency

Bitcoin gained 0.33%, trading around 77,061 yuan at the time of writing, while Ethereum advanced 2.8% to $2,512.

Crude Oil

West Texas Intermediate crude for October delivery fell $2.43, or 2.37%, to settle at $100.05 per barrel on the New York Mercantile Exchange. Brent crude for November delivery dropped $3.02, or 2.81%, to settle at $104.61 per barrel on the London ICE exchange. Despite the daily decline, US crude still posted a weekly gain of nearly 10%, and Brent rose 8.6% for the week, fueling expectations of higher US inflation and pressuring equity markets.

Precious Metals

Spot gold rose 0.74% to $4,348.43 per ounce, while spot silver advanced 1.42% to $64.499 per ounce. Goldman Sachs continues to see net upside risks to its forecast of gold reaching $4,900 per ounce by the end of 2026, though it noted that two-way volatility on the path will also increase. The firm stated that its year-end 2026 fair value prediction of $4,900 assumes persistently strong central bank demand. If ETF investor inflows resume and the current elevated bullish options positioning persists, dealer hedging could mechanically amplify gains, pushing prices well beyond its forecast. Goldman also cautioned that if Fed rate hike expectations reheat, it could trigger dealer hedging unwinds, leading to a sharper-than-usual correction in gold prices.

Macro News

US consumer prices accelerated in August as gasoline costs rebounded after two consecutive months of declines, reinforcing market expectations that the Federal Reserve could raise interest rates next week. The Labor Department's Bureau of Labor Statistics reported Friday that the Consumer Price Index rose 0.4% month-over-month, following a modest 0.1% increase in July. Over the 12 months through August, consumer inflation increased 3.4%, matching July's pace. The core CPI, excluding food and energy, rose 0.3% on a seasonally adjusted basis, exceeding the 0.2% market forecast. Thursday's data had already shown a rise in August producer prices, with several key components that feed into the PCE inflation calculation showing strong gains. Combined with last week's robust August jobs report, this has further elevated expectations for a rate hike next week.

Following the August CPI release, markets priced in roughly a 90% probability of a Fed rate increase next week. Some economists argue that price pressures will persist due to import tariffs, including recently imposed duties on Canada, one of the US's largest trading partners. Discontent over rising prices, particularly for gasoline and food, has caused former President Trump's approval ratings to slide sharply and could cost his Republican Party control of Congress in the November midterm elections. Fed Chair Warsh stated last month that if policymakers fail to gain the confidence they need that inflation is moving toward the 2% target, the Fed still has "work to do."

Nick Timiraos, often referred to as the "Fed whisperer," wrote in a recent article that investors have largely concluded the Fed will deliver its first rate hike in three years next week, but the more difficult question is what happens next. With few inside the Fed believing a single 25-basis-point hike would be sufficient to curb inflation, a decision to raise rates next week would reflect a judgment that rates had been at an incorrect level, and one hike alone cannot solve the problem. Since the 1990s, the Fed has only executed a "one-and-done" rate hike once. Warsh stated in July that he does not believe the Fed excels at "fine-tuning," and analysts suggest a chair skeptical of fine-tuning is unlikely to hike 25 basis points and then declare mission accomplished. Warsh also noted last month that there is not much evidence that borrowing conditions are restricting economic activity. If that rationale drives a hike, markets will naturally question how much higher rates need to go. Without an explanation, markets could interpret a single hike as the beginning of a larger campaign. As a result, investors are no longer viewing the September meeting as a standalone event. Markets currently expect at least three cumulative rate hikes by June of next year, up from the previously projected two.

US consumer sentiment fell for a second consecutive month in September, with the preliminary University of Michigan Consumer Sentiment Index reading at 47.8, a decline of less than four index points. Both Democrats and Republicans saw sharp drops, while independents were largely unchanged from August. Expectations for personal finances and business conditions over the next year deteriorated notably. With fuel prices rebounding and trade tensions escalating, consumers anticipate greater financial strain ahead. The five-year outlook for business conditions remained stable, though readings are well below historical averages, suggesting consumers do not believe the new risks emerging this month have worsened the longer-term outlook. Overall, consumer sentiment is now 16% below the level seen before the Iran conflict began in February and 13% lower than a year ago. One-year inflation expectations jumped to 4.6% this month from 4.0% last month, the highest reading since June. This current reading significantly exceeds the 3.4% recorded in February before the Iran conflict and surpasses all 2024 readings. Long-run inflation expectations ticked up to 3.4%, ending a three-month streak at 3.3%. These expectations remain above the 2.8% to 3.2% range seen in 2024.

White House National Economic Council Director Hassett downplayed concerns that a proposal to send $5,000 checks to every American adult would exacerbate the government's historically high borrowing levels. Hassett stated, "We can do this in a fiscally responsible way. This is a serious proposal." He argued that "because of all the growth and wealth created in America, the President believes we need to return more wealth to the American people. One way is through the reconciliation bill – a legislative mechanism available to the House and Senate majority for fiscal packages, bypassing the need for opposition party votes." When pressed on what offsetting measures might accompany these checks – which would add more than $1 trillion in spending at a time when the US federal debt burden is heading toward record highs – Hassett said it would have to be "negotiated with Congress." Analysts remain skeptical that the $5,000 payments can be realized, as senior Republican leaders in both the House and Senate have responded coolly to the idea.

Stock Highlights

SpaceX plans to deploy its first batch of V3 Starlink satellites during a Starship test flight as early as next week. The company has grand ambitions for Starship. If all goes according to plan, the 407-foot-tall rocket could one day be used to build a network of orbital AI data centers and transport humans to the Moon and Mars. But first, the company intends to use Starship to launch a new batch of its improved revenue generators – Starlink satellites – into orbit. A successful Starship test flight is critical for SpaceX and its shareholders. The company needs Starship not only to revitalize its own Starlink communications network, which contributed nearly 55% of the company's revenue in the second quarter, but also to launch satellites for a range of commercial purposes. Then there is perhaps its most lucrative mission: delivering a futuristic orbital data center into space, which SpaceX says could help tap into the $26.5 trillion AI market opportunity.

Analyst Ratings

BMO Capital Markets initiated coverage of Lululemon (LULU.US) this week with an underperform rating, stating that the athletic apparel company's turnaround will not be quick or easy, as it loses market share to competitors and faces worsening sales declines. Analysts led by Kelly Crago noted that the Vancouver-based company's weak quarterly report and lowered full-year outlook revealed a business facing deep challenges. With emerging brands like Alo and Vuori gaining popularity among younger consumers, the Americas region's performance is deteriorating. Crago's $70 price target – the second lowest on Wall Street according to compiled data – implies a decline of roughly 28% from Thursday's closing price. BMO is just the latest institution to turn bearish on the retailer, with at least four brokerages downgrading their ratings since June. The stock currently carries six sell-equivalent ratings, 29 holds, and two buys.