Trading has been choppy through the week, with investors adjusting their rate-cut expectations, and seeking new catalysts for a clearer market direction. Investors are now expecting there’s an 82% chance the Federal Reserve will lower interest rates by 25 basis points at its November meeting, according to CME’s FedWatch tool. However, a few are starting to think the Fed might pause and leave rates unchanged. This shift comes after last week’s strong jobs report. Before that, many in the market were expecting a larger 50-basis-point cut in November.
The attention of investors is now turning to crucial inflation data on Thursday and the upcoming third-quarter corporate earnings season. The upcoming inflation report will play a crucial role in shaping the outlook for monetary policy. If the data shows that inflation is being kept in check, it could boost confidence among consumers and investors, encouraging more spending and investment. This increased optimism tends to drive economic growth, as people feel more secure about the stability of prices and the broader economy.
See Related: Investors Shifted Their Focus To This Week’s Job Report. What To Expect In The Upcoming Days?
Corporate Profits And Earnings
Corporate profits are emerging as the big driver of what the market is likely to do in the near term, and if earnings results fall short of expectations, the stock market’s reaction could be severe. Conversely, positive earnings can drive investor optimism, leading to increased buying activity and higher stock prices. On a positive note, UBS analysts expressed optimism about tech stocks this week, citing the strong outlook for artificial intelligence (AI).
They encouraged investors to take advantage of the current market volatility as an opportunity to build long-term exposure to AI, which they see as a key growth driver in the sector. UBS analysts led by Solita Marcelli, chief investment officer for Americas for global wealth management, said:
“While second-quarter results were mixed, we expect tech and AI companies to “beat and raise” for the September quarter. We continue to favor the semiconductor space and mega-caps for AI exposure, and recommend investors consider structured strategies or a buy-the-dip approach for quality AI stocks.”
UBS sees continued investment in AI driving growth through 2025. Major tech players like Alphabet and Meta have emphasized that the real risk lies in underinvesting in AI, not overspending. Despite the focus on AI, analysis shows that the overall capital expenditure by big tech is still below historical levels, suggesting there’s plenty of room for further investment in this space.
