Article published at 9:05 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- The Fed rate decision is the main event this week
- Oil prices higher as Middle East conflicts grow
- AI warnings and spending under spotlight
Expect volatility this week as conflicts in the Middle East escalate oil prices, artificial intelligence (AI) fears ratchet up, and investors await the main event: the Federal Reserve’s decision on whether to raise interest rates.
Stocks are starting the week on a bad note in early trading as investors digest macroeconomic and geopolitical news. The Nasdaq Composite is dropping 1.20% as technology companies pull back amid calls this weekend to slow AI development. That could threaten the massive investments in the technology. The Dow Jones Industrial Average is off 0.30% and the S&P 500 Index is giving back 0.74%.
The chief executives of the largest AI companies backed Anthropic Chief Executive Dario Amodei’s warning that AI agents could take over the internet in six months to a year as new AI models become more powerful and threaten human existence. That opens questions about how the technology might be regulated, how the industry self-governs its frenetic growth and whether the government will get involved.
Shares of major tech stocks are significantly lower in early trading, with Marvell down 8.07%, Advanced Micro Devices off 5.78%, Intel by 6.90% and Coherent losing 7.10%. Not surprisingly, cybersecurity stocks are gaining, with Palo Alto shares higher by 5.08%, CrowdStrike up 5.54%, Fortinet adding 3.61% and Datadog up 1.26%.
On the interest rate front, the hikes look nearly certain – the CME FedWatch tool is tracking an 88.3% probability of a 25-basis-point boost – so investors will be focused on the “what’s next.” The Fed kicks off its two-day session Tuesday, with the rate decision expected Wednesday afternoon.
Don’t expect Fed Chair Kevin Warsh to be too illuminating during Wednesday’s press conference, given his efforts to limit advanced signals on the direction the Federal Open Market Committee (FOMC) might take in coming months. But the Fed is also expected to release updated Economic Projections, the so-called dot plot, which might offer insight.
Consider this: the Fed has rarely been a one-and-done rate mover, no matter which direction it takes. It typically adjusts rates in successive cycles. That’s not to say it can’t or won’t shift gears; it last had a single rate hike in March 1997. But note that rate adjustments usually run in a serial pattern. Also on global economic central banks’ agendas this week are the Bank of England and the Bank of Japan making decisions about their sticky inflation issues. Last week the European Central Bank upped interest rates by 25 basis points.
Other economic catalysts to keep watch this week are retail sales coming out ahead of the Fed’s decision Wednesday. The August data will indicate whether consumers are still holding up or pulling in their purse strings amid higher prices. Thursday brings housing starts and a perspective on the labor market with the latest initial jobless claims.
We’ll get some insight on, well, the health of the healthcare industry during Morgan Stanley’s annual conference that begins today through Wednesday. Eli Lilly, Johnson & Johnson and McKesson are among those presenting.
Speaking of the housing market, there are very few earnings results on this week’s calendar, but we’re keeping an eye on Lennar’s results. Wall Street is expecting a 35% drop in earnings per share, underscoring how difficult the housing market is. The implied move in either direction is 5.2%.
Crude oil prices are swinging higher after Saudi Arabia shut down the major East-West pipeline after drone attacks stuck infrastructure. The pipeline had become a crucial bypass around the Strait of Hormuz, which is still choking off oil supplies. WTI Crude oil prices climbed 4.2% to over $104 per barrel, while Brent is hovering near $109 per barrel, up 4%.
Happy Trading!
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