Dow Jones, Nasdaq, S&P 500 Weekly Preview: New Economic Data May Fuel Stock Gains

The Dow Jones Industrial Average saw a slight increase on Friday, achieving a new record high as it concluded a robust week, bolstered by the Federal Reserve’s significant interest rate cut—the first major reduction in four years.

The Dow rose by 38.17 points, or 0.09%, to finish at 42,063.36, reaching an unprecedented level. In contrast, the S&P 500 dipped 0.19% to 5,702.55, and the Nasdaq Composite declined 0.36% to 17,948.32. Earlier in the week, the Dow had surpassed the 42,000 mark for the first time, while the S&P 500 exceeded the 5,700 benchmark.

All three major indices wrapped up the week with gains. The S&P 500 advanced by 1.36%, achieving increases in five of the past six weeks, and has risen by more than 19% since the start of 2024. The Dow climbed 1.62%, and the Nasdaq gained 1.49%.

Market activity this week followed the Fed’s announcement of a substantial half-percentage-point interest rate cut on Wednesday, marking its first reduction since 2020.

Investors will be closely watching the upcoming comments from Fed officials, which may shed light on last week’s unexpected decision. On Thursday, key Fed leaders are scheduled to address the 10th annual U.S. Treasury Market Conference. Fed Chair Powell will provide opening remarks, followed by comments from New York Fed President Williams and Vice Chair for Supervision Barr.

Analysts have indicated that their remarks will be scrutinized for potential insights into the future of regulatory policies and updates on the Fed’s approach to balance sheet reduction.

Key economic reports this week will include the final reading of Q2 real GDP on Thursday, anticipated to align with the preliminary figure of 3.0%. Friday will feature updates on personal income (projected at +0.3% compared to the previous +0.3%) and consumption (+0.3% vs. +0.5%) for August. Additionally, core PCE inflation data is set to be released, expected to show an increase of +0.18% compared to the prior figure of +0.16%.

Stronger-than-expected economic data could positively impact stocks, particularly those in the S&P 493, benefiting from a more accommodative monetary policy and solid economic growth. However, bondholders may be less optimistic if long-term Treasury yields continue to rise in this favorable economic scenario.

As September comes to a close, the earnings calendar is relatively light but includes significant reports from companies such as Micron Technology and Costco Wholesale. Micron, a key supplier of AI memory chips, will report its earnings Wednesday, with analysts predicting a 90% year-over-year revenue increase due to heightened demand for memory chips in the AI sector. While some analysts remain optimistic about Micron, others have downgraded their ratings and adjusted price targets due to high inventory levels and signs of a sluggish recovery in the memory market.

Additionally, earnings updates from firms like Accenture, BlackBerry, and AutoZone will also be under scrutiny.

Analysts have shared varied perspectives on the stock market:

• Oppenheimer: They expect small and midcap stocks to experience more sustained rallies following the Fed’s rate cut. They maintain a preference for equities over fixed income but see bonds as a complementary asset within diversified portfolios, keeping their target price for the S&P 500 at 5,900.

• Bank of America: Following the Fed’s recent decisions, they believe the market has moved past significant uncertainty, with quiet macro weeks historically showing strong performance for stocks.

• BTIG: They note that while a seasonal downturn is possible, new highs in the S&P could lead to positive medium-term outcomes, particularly if high beta stocks clear key resistance levels.

• Morgan Stanley: They see the Fed’s actions as beneficial for stocks in the short term and have adopted a neutral stance between defensive and cyclical investments while recommending large-cap stocks with a quality bias.