(Bloomberg) — Wall Street kicked off the week with gains as traders see a Federal Reserve cut on Wednesday as a sure thing, while awaiting validation from officials on bets for a series of reductions extending into next year.
The $14 trillion rally that’s taken US equities to record highs is heading for an inflection point, with the first rate cut since Donald Trump became president again likely to seize the spotlight in a week that will determine policy settings for half of the world’s 10 most-traded currencies.
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A surge in tech megacaps drove the S&P 500 above 6,600. A 6% jump in Tesla Inc. erased its 2025 losses as Elon Musk bought $1 billion worth of shares. Alphabet Inc. hit $3 trillion. Treasuries rose, with two-year yields hovering near the lowest since last September. The dollar slid.
Recent signs of weakening in the labor market, paired with no surprises in the latest inflation data, sealed the deal for what most economists expect will be a quarter-point Fed cut. The pace of easing after that is now the big question, with prices stubbornly above the central bank’s target.
“Now the discussion will turn to how aggressively the Fed will act,” said Chris Larkin at E*Trade from Morgan Stanley. “The Fed may remind everyone that it may be focused on jobs now, but it hasn’t forgotten about the other half of its mandate.”
Read: Trump Urges Powell to Cut Rates ‘Bigger Than He Had in Mind’
US policymakers on Wednesday will also release their quarterly update of economic and rate forecasts — known as the dot plot — and Fed Chair Jerome Powell will hold his regular post-decision press conference. In June, Fed officials were narrowly in favor of two quarter-point cuts in 2025.
What traders will really hang on is the tone of Powell’s press conference and the “dot plot” projections, according to Fawad Razaqzada at City Index and Forex.com.
“I’ll be watching how the market reacts to any mention of inflation being ‘well anchored’ or the labor market ‘cooling more than expected,” he said. “That sort of language would be music to the ears of dollar bears. On the flip side, a cautious Fed that hints at a ‘wait and see’ approach might stall the rally, at least temporarily.”
Before that, Razaqzada noted that there’s also a bit of data to keep things lively before and after the decision. Tuesday’s retail sales could either reinforce the soft-landing narrative or raise fresh concerns about consumer demand, he said.
In a nod to data that suggests that US-based firms are growing reluctant to hire, the Fed will cut by 25 basis points this week, according to Thierry Wizman at Macquarie Group. But to the central bank’s hawks, monetary policy doesn’t present as being tight, he noted.
“And so Jay Powell will offer balance. He’ll highlight again the downside risk to employment growth, but refrain from signaling a (long) string of cuts after September,” Wizman said.
Lon Erickson at Thornburg Investment Management says he doesn’t think we’re ready for another 50 basis-point cut this year like the Fed did when the cutting process first began.
“Considering what we’ve seen with inflation, which came in a bit higher than expected, they’ll continue to be cautious,” he said. “The wild card remains inflation. The key question is how that plays out over the rest of the year and whether we end up in the dreaded stagflation-type environment, which would put the Fed in a tough spot.”
Erickson says he’s leaning more towards expecting a rate cut at each of the remaining meetings this year amid a softening labor market.
“Near-term risk is centered on the tension between lagging, weak labor data and the Fed’s response that may not meet the markets’ ‘need for speed,’” Morgan Stanley’s Michael Wilson said. Still, he recommended buying any dips, and his most bullish scenario sees the S&P 500 climbing to 7,200 points by mid-2026.
JPMorgan Chase & Co. strategists said that while the stock market has disregarded weak indicators to post multiple record highs, this trend could reverse once the Fed makes its first cut of 2025.
“Once the easing resumes, equities could turn more cautious for a bit, and price in some more downside risk, in effect repricing the current, potentially complacent, stance,” a team led by Mislav Matejka wrote.
Bullish traders may have history on their side: The S&P 500 has been 15% higher, on average, a year after cuts resumed following a pause of six months or more, data from Ned Davis Research going back to the 1970s show. That compares to a 12% gain in the same period after the first cut of an ordinary cycle.
“With the weakening labor market and inflation seemingly under control, we expect a rate cut starting this week and totaling 100 basis points over the next four meetings through January 2026,” said Brian Buetel at UBS Wealth Management. “The stock market’s recent gains are being driven by strong earnings momentum and declining rates.”
Buetel says he expects modest upside between now and the end of the year, and the bull market continuing to gain steam into 2026, as investors have plenty of earnings momentum runway to work with.
Measures of projected volatility look dormant, and analysts’ profit views for the first half of 2026 are climbing back toward where they stood at the beginning of the year. Since bottoming in July, 2026 earnings estimates for the S&P 500 have climbed in each of the past nine weeks. At $295 per share, they’re in line with where they stood in late April, according to Bloomberg Intelligence.
Even as the Fed meeting and $5 trillion quarterly triple-witching options expiry loom over the equity market, volatility traders are also circling the upcoming jobs data on their calendars.
Options markets are pricing in a 0.78% move for the US nonfarm payrolls report Oct. 3 and 0.72% for Wednesday’s Fed rate decision, according to Citigroup Inc.
“If you threw up a minus 50k payrolls next month you’re gonna get vol higher,” said Stuart Kaiser, head of US equity-trading strategy at Citigroup, adding that negative payrolls are likely needed to get swings higher. “I don’t think there’s any way around that. You probably need the unemployment rate to be around 4.5%.”
Meantime, President Trump again called for an end to quarterly earnings reports, tapping into a long-running fault line in American capitalism over how much information should be disclosed by public companies.
“Subject to SEC Approval, Companies and Corporations should no longer be forced to “Report” on a quarterly basis (Quarterly Reporting!), but rather to Report on a ‘Six (6) Month Basis,’” Trump said on social media. “This will save money, and allow managers to focus on properly running their companies.”
On the tariff front, Trump said he would speak with Chinese leader Xi Jinping on Friday, in what would be the two leaders’ first direct engagement since June, and one where a settlement over the Chinese-owned TikTok app may be at stake.
Corporate Highlights:
China ruled that Nvidia Corp. violated anti-monopoly laws with a high-profile 2020 deal, ratcheting up the pressure on Washington during sensitive trade negotiations. CoreWeave Inc. said its shareholder Nvidia Corp. has agreed to buy cloud services valued at $6.3 billion, part of that company’s push to speed up the adoption of artificial intelligence across the economy. Alaska Air Group Inc.’s adjusted third-quarter profit will be at the low end of the carrier’s previous estimate of $1 to $1.40 a share, driven down by a July technology outage and rising fuel prices. Exxon Mobil Corp. is introducing a program to encourage more retail investors to support the company in proxy votes with an automatic system that threatens to limit the influence of activists. Snap Inc. is rolling out an updated version of its operating system for augmented-reality glasses, a move that signals it’s getting closer to launching its first consumer smart glasses next year. WaterBridge Infrastructure LLC’s initial public offering of as much as $540 million has attracted investor demand for multiple times the available shares, according to people familiar with the matter. Robinhood Markets Inc. is launching a closed-end fund to give US retail investors exposure to private companies. What Bloomberg Strategists say…
“Equity traders, fixated on this week’s anticipated Fed rate cut, are unlikely to be unsettled unless Tuesday’s retail sales report reveals a sharp decline. Still, the outlook bears watching, as consumer strength has long served as a crucial pillar for both the economy and financial markets.”
—Tatiana Darie, Macro Strategist, Markets Live. For the full analysis, click here.
Some of the main moves in markets:
Stocks
The S&P 500 rose 0.4% as of 12:56 p.m. New York time The Nasdaq 100 rose 0.7% The Dow Jones Industrial Average was little changed The MSCI World Index rose 0.5% Bloomberg Magnificent 7 Total Return Index rose 2% The Russell 2000 Index rose 0.4% Currencies
The Bloomberg Dollar Spot Index fell 0.2% The euro rose 0.2% to $1.1757 The British pound rose 0.3% to $1.3598 The Japanese yen rose 0.2% to 147.36 per dollar Cryptocurrencies
Bitcoin fell 1% to $114,749.44 Ether fell 2.6% to $4,497.32 Bonds
The yield on 10-year Treasuries declined three basis points to 4.03% Germany’s 10-year yield declined two basis points to 2.69% Britain’s 10-year yield declined four basis points to 4.63% The yield on 2-year Treasuries declined two basis points to 3.53% The yield on 30-year Treasuries declined three basis points to 4.65% Commodities
West Texas Intermediate crude rose 0.8% to $63.21 a barrel Spot gold rose 1% to $3,679.50 an ounce ©2025 Bloomberg L.P.