Market Support Ahead of the Fed Decision
US equities closed higher on Tuesday as investors positioned for a dovish Federal Reserve outcome. The S&P 500 gained +0.23%, the Dow Jones added +0.34%, and the Nasdaq 100 rose +0.74%. Markets are fully pricing in a 25-basis-point rate cut at Wednesday’s FOMC meeting, bringing the federal funds target range down to 3.75–4.00%.
In addition, traders see a 90% chance of another rate cut in December and expect a total easing of 115 basis points by the end of 2026, lowering rates to around 2.95%.
End of Quantitative Tightening
Optimism also stems from expectations that the Fed will announce the end of its quantitative tightening (QT) program, which has reduced the central bank’s balance sheet and drained liquidity from the system. A pause in QT would be a major boost for both stock and bond markets.
While this meeting won’t include updated economic projections or the “dot plot,” investors await Chair Jerome Powell’s comments for clues on future policy moves and the Fed’s outlook on inflation and growth.
Strong Economic Data
Recent macroeconomic reports supported risk appetite. The FHFA housing price index rose +0.4% in August, beating forecasts. The Richmond Fed manufacturing index climbed 13 points, and consumer confidence fell only slightly, remaining above expectations. Together, these data suggest that the US economy continues to show resilience and may achieve a soft landing.
Trade Optimism Adds to Gains
Markets also drew support from progress in US-China trade talks. Negotiators reportedly reached a preliminary agreement over the weekend, which could be finalized Thursday at the APEC summit. China agreed to refrain from restricting rare earth exports and to increase purchases of US agricultural goods, while the US removed plans for 100% tariffs on Chinese imports.
Earnings Season Focuses on Tech Giants
This is one of the heaviest earnings weeks of the quarter, with 173 S&P 500 companies reporting. Five of the “Magnificent Seven” report this week: Alphabet, Meta, and Microsoft on Wednesday, followed by Apple and Amazon on Thursday. According to Bloomberg Intelligence, 84% of companies have beaten profit forecasts so far — the strongest showing since 2021 — though earnings growth has slowed to +7.2% year-over-year.
Political and Fiscal Uncertainty
The ongoing US government shutdown, now in its fifth week, remains a drag on sentiment. About 640,000 federal employees are on furlough, which could weigh on employment and consumer spending.
In trade developments, President Trump announced a new 10% tariff on imports from Canada after a political dispute with Ontario’s government. The Supreme Court will hear arguments on November 5 regarding the legality of Trump’s “reciprocal tariffs.” A ruling against the administration could restrict its ability to impose new tariffs and force refunds of those already collected.
Market Leaders and Laggards
Tech stocks once again led the market. Nvidia surged nearly +5% after unveiling new partnerships and plans for AI chips integrated with quantum computing systems. Microsoft gained about +2% following news that it will acquire a 27% stake in OpenAI’s new for-profit entity, valued at $135 billion.
PayPal climbed +4% after reports that its digital wallet will be embedded into ChatGPT. Regeneron soared +11% on strong earnings, while UPS jumped +8% on better-than-expected adjusted profits.
Among the laggards, D.R. Horton fell -3% and Royal Caribbean plunged -8% after disappointing earnings results.
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Twitter: @BigStakeTrades