The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.42%. September E-mini S&P futures (ESU25) fell -0.06%, and September E-mini Nasdaq futures (NQU25) rose +0.41%.
Stock indexes settled mixed on Friday, as higher bond yields sparked long liquidation in equities. The 10-year T-note yield rose +5 bp to 4.06%. Also, the larger-than-expected decline in the University of Michigan US Sep consumer sentiment index to a 4-month low weighed on stock prices.
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Stocks initially moved higher on Friday, with the S&P 500 and Nasdaq 100 posting new all-time highs. Friday’s weaker-than-expected report on US consumer sentiment for September added to this week’s Fed-friendly news that has bolstered the outlook for Fed interest rate cuts and supported this week’s rally in the major stock indexes to new record highs.
Most major US benchmark indexes, including the S&P 500, the Dow Jones Industrials, and the Nasdaq 100, posted record highs this week, driven by expectations of Fed interest rate cuts. Stocks rallied to new all-time highs this week as weak labormarket newsand relatively contained inflation reports bolstered expectations for at least a 25 bp rate cut by the Fed at next week’s FOMC meeting and a total of 75 bp of rate cuts by year’s end.
In a negative factor for the US economy, today’s University of Michigan US Sep consumer sentiment index fell -2.8 to a 4-month low of 55.4, weaker than expectations of 58.0.
The University of Michigan Sep 1-year inflation expectations were unchanged from Aug at +4.8%, right on expectations. However, Sep 5-10 year inflation expectations unexpectedly increased to +3.9% from +3.5% in Aug, higher than expectations of a decline to +3.4%.
The markets are pricing in a 100% chance of a -25 bp rate cut and an 8% chance of a -50 bp rate cut at the upcoming FOMC meeting on September 16-17. After the fully expected -25 bp rate cut at the Sep 16-17 meeting, the markets are discounting a 91% chance of a second -25 bp rate cut at the Oct 28-29 meeting. The markets are pricing in an overall -70 bp rate cut in the federal funds rate by year-end to 3.63% from the current 4.33% rate.
Overseas stock markets on Friday settled mixed. The Euro Stoxx 50 closed up +0.07%. China’s Shanghai Composite fell from a 10-year high and closed down -0.12%. Japan’s Nikkei Stock 225 rallied to a new all-time high and closed up +0.89%.
Interest Rates
December 10-year T-notes (ZNZ5) on Friday closed down -12 ticks. The 10-year T-note yield rose by +3.4 bp to 4.055%. T-notes slid on Friday on profit-taking and long liquidation following this week’s rally to 5-month highs. Also, the University of Michigan’s September 5-10 year inflation expectations unexpectedly increased to +3.9% from +3.5% in August.