US stock futures steady after Nasdaq hits record high; Fed cut hopes in focus

U.S. equities, particularly the Nasdaq, reached new highs, buoyed by strong tech earnings like Broadcom's and increasing expectations for a Federal Reserve rate cut next week following weaker-than-forecast U.S. jobs data. Money markets now fully price in a 25 basis point cut, with rising odds for a 50 basis point reduction, making Thursday's crucial August CPI and PPI reports key determinants for future policy. Investors also anticipate upcoming earnings from GameStop and Oracle, alongside Apple's significant product event.

Analysis

The U.S. market is exhibiting strong bullish momentum, with the NASDAQ Composite reaching a new record high, underpinned by a confluence of macroeconomic optimism and sector-specific strength. Investor sentiment is being driven by increasing expectations for a Federal Reserve rate cut at its next meeting, a view solidified by recent weak labor market data showing nonfarm payrolls grew by only 22,000 and the unemployment rate rose to 4.3%. According to the CME FedWatch tool, money markets have fully priced in a 25 basis point cut, with rising odds of a more aggressive 50 basis point reduction. This has placed significant importance on the upcoming August consumer price index (CPI) and producer price index (PPI) reports, which will be critical in shaping the Fed's policy path. At the sector level, technology, particularly semiconductors, is leading the charge, exemplified by Broadcom Inc.'s (AVGO) rally following stronger-than-expected earnings. Looking ahead, key single-stock catalysts include earnings reports from GameStop Corp. (GME), which has seen its stock decline 26% year-to-date, and Oracle Corporation (ORCL), as well as a highly anticipated product launch event from Apple Inc. (AAPL).

Key Decisions for Investors

• Given the market's reliance on imminent Fed easing, investors should closely monitor Thursday's CPI report, as an inflation figure hotter than anticipated could rapidly unwind rate cut expectations and trigger a market pullback.
• The sustained strength in the semiconductor sector, highlighted by Broadcom's performance, suggests continued momentum, but investors should be cognizant of elevated valuations and the sector's sensitivity to macroeconomic data.
• Consider positioning for near-term event-driven volatility, particularly with Apple's product launch which carries positive sentiment, while exercising caution around GameStop's earnings due to the stock's significant prior decline and inherent uncertainty.