The Fed, led by Chair Jerome Powell, cut rates by 25 basis points in a “risk management” move prompted by signs of a weakening job market and persistent inflation hovering around 3%, which may become the new target rather than the previous 2%. Despite the rate cut, bond yields have risen slightly, reflecting ongoing inflation concerns and substantial US deficits, causing tension between rising yields and falling rates.

Markets celebrated, pushing the S&P up 1.2% and the Nasdaq up 2.2%. Yet beneath the surface, signs of overheating are emerging, with comparisons being drawn to the year 2000.

Market Performance Snapshot

• Equities: Strong gains led by semiconductors, software, tech, and cybersecurity.

  

   

• Laggards: Homebuilders, utilities, real estate, and consumer staples—all pressured by rising yields.
• Currencies: USD softened briefly post-FOMC before rebounding.
• Crypto: Ethereum slipped ~5% on the week.
• Commodities: Gold, WTI, and copper traded flat.

  

   

Rates & Yields

• 10-Year Treasury: Rose to 4.13% despite the Fed cut, highlighting persistent deficits and sticky inflation.
• Looking Ahead: Markets expect two more 25 bps cuts in October and December (per CME futures).

Volatility Update

• VIX: 15.5% — implied volatility is low, but realized volatility is even lower.
• Implication: A case exists for further compression in implied volatility, though shorting vol remains risky.

Technicals at a Glance

• S&P 500: Approaching resistance, still trending higher.

  

• Nasdaq: Continues making new highs.
• Russell 2000: Stalling near a potential triple top; many components remain unprofitable.

   

  

• Momentum Trades: Goldman Sachs’ momentum index up 20% in just 10 days — retail traders firmly in control.

  

Special Situations

• S&P 500 Inclusions:
  • Applovin surged 30% since the announcement of its inclusion in the S&P 500.
  • Robinhood also spiked on heavy passive fund buying.
• Corporate Moves: Intel revealed a $5B Nvidia share purchase.

Macro & Flows

• Retail Sales: Strong August (+0.7% MoM, +5.4% YoY), confirming the U.S. consumer remains the growth engine.
• Fund Flows: ~$70B inflows this week, with $30–40B into tech alone.
• Meme Trades: High-beta and uranium-linked names soared double digits in just five days.

The Week Ahead

• Macro Data:
  • Tuesday: Flash PMIs
  • Thursday: Weekly jobless claims
  • Friday: PCE, personal income, University of Michigan sentiment
• Earnings to Watch:
  • Micron (Tuesday) – key AI/semis read
  • Costco (Thursday) – retail strength check
• Fed Speakers: Post-blackout, Powell and others in focus.
• Bonds: $200B supply (2Y–7Y), keeping pressure on yields.

  

   

Key Risks & Outlook

• Divergence is forming between rising stocks and higher yields — historically unsustainable.

  

  S&P 500 Futures (lhs) vs 10-Year T-Note (rhs).

• Technicals and flows point to an overbought market.
• Expect a possible 2–3% pullback in the S&P over coming weeks.

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