MARKET COMMENTARY

Wall Street rallied last week as hopes for a Federal Reserve rate cut gained momentum, with stocks, bonds, and currencies responding to softer jobs data and persistent inflation. 

All eyes are now on policy signals, which could spark volatility if new surprises emerge • but for now, optimism prevails. Read on for key developments:

Stock Index Performance

• The S&P 500 climbed 1.59%. 
• The Nasdaq 100 gained 1.86%. 
• The Dow Jones Industrial Average rose 0.95%. 

Consumer Inflation 

• U.S. inflation accelerated in August, with the Consumer Price Index (CPI) rising 2.9% from a year earlier, up from 2.7% in July and the highest since January. The reading matched forecasts, while monthly CPI advanced 0.4%, above the 0.3% consensus. 
• Shelter costs climbed 0.4% in August, remaining the largest driver of inflation, while food prices advanced 0.5% and energy rebounded 0.7% on higher gasoline and electricity. Core CPI (which removes more volatile food and energy) rose 0.3% on the month and 3.1% annually, matching July•s pace. 
• The Producer Price Index (PPI), a key gauge of pipeline inflation, unexpectedly fell 0.1% in August • the third deflationary reading this year • defying Wall Street•s call for a 0.3% increase. Core PPI also slipped 0.1%. 

Policy Expectations & Market Sentiment 

• A Reuters poll shows 98% of economists expect a September cut, with many now projecting up to three reductions this year as job growth slows and jobless claims hit a four-year high.
• Traders largely expect a 25-basis-point (0.25%) move at the September meeting, though some see a chance for a 50-basis-point cut if labor data weakens further ahead of the meeting. 
• Despite inflation running above target at 2.9% year-over-year (core 3.1%), soft job creation and rising unemployment are pushing the Fed toward easing, with Powell signaling a willingness to tolerate hotter prices to support the labor market. 

The Week Ahead 

• Markets remain optimistic, but this could reverse quickly. Any unexpected policy shift at the Federal Open Market Committee (FOMC) meeting on Sept. 16-17 or hotter-than-expected inflation data may reignite volatility and sector rotation. For now, the focus is on policy signals and sectors likely to benefit from looser financial conditions. 
• Wall Street will also be watching August retail sales (released on September 17) for clues on consumer spending strength; fresh housing reports (released on September 18) for updates on residential activity; and the latest jobless claims (released on September 18) to track labor market trends. These data points, alongside the Fed•s rate decision, will guide market sentiment.