Stocks recover, tech rebounds ahead of Fed cut: Market Takeaways

US stocks (^DJI,^GSPC, ^IXIC) closed the week on a high note ahead of the Federal Reserve's highly anticipated interest rate cut next week. Meanwhile, the Nasdaq Composite (^IXIC) saw its best week of the year as the tech sector bounced back. Nvidia (NVDA), in particular, is up nearly 16% after comments from CEO Jensen Huang renewed confidence in AI chip demand.

Yahoo Finance Senior Reporter Alexandra Canal breaks down her top takeaways from the trading week.

For more expert insight and the latest market action, click here to watch this full episode of Asking for a Trend.

This post was written by Melanie Riehl

Video transcript

Us, stocks closed the week on a high note posting strong weekly wins job finances.

Alexander Canal joins us now with the trading day takeaways.

Hi, Joshua.

Big trading day take away for me.

And really the past 24 hours has been a shift in expectations when it comes to how aggressively the Federal Reserve is going to cut interest rates next week.

It was only yesterday that the majority of traders were betting on a 25 basis point cut, but that has shifted pretty dramatically.

We are now 5050 when it comes to whether or not we'll see a more aggressive 50 basis point cut or that 25 basis point cut.

Now, the reason for this is that we got two reports from the Financial Times.

The Wall Street Journal that policymakers are really having a difficult time deciding what to do here.

We also heard from former New York fed president, Bill Dudley about how a 50 basis point cut there's a strong case to be made there as a Federal Reserve works to really navigate a soft landing of the economy.

And it's interesting to see how that's being reflected in markets.

This market rotation happening right now, if you take a look at the S and P 500 equal weighted index that closed up nearly 1% ahead of all three of the major gauges.

You look at something like the Russell 2000 small caps, a very interest rate sensitive area of the market closing up nearly 2.5%.

And then I also want to take a quick look at yields.

The 10 year yields falling about three basis points to trade around 3.65%.

Same thing with the 30 year down about two basis points to trade just under 4%.

And really when we look ahead of what the fed decides, I think we're going to see some volatility regardless of the decision.

And that places that much more emphasis on that post decision presser from Jerome Pell at 230.

What is he going to say if we do get a 25 basis point cut?

What is he going to say if we do get a 50?

And is he going to leave the door open heading into the rest of the year?

Yeah, there's so many interesting wrinkles in this because I've heard very smart economists who want to say 50 say um listen, the federal funds rate has been around above 5% for a while to fight inflation.

Inflation is now cool and we need to focus on the labor market at the same time.

Another thread to think about is, you know, we were just talking to our own Rick Newman um, politics.

I mean, II, I know Jay Powell will tell you he's a political but can you really do 50 in an election year?

Just weeks before the big voting day?

Right earlier today, we heard from JP Morgan, Michael Foley saying that he hopes the fed will do the right thing, which in his view is cutting by 50.

So, you know, it's going to be a toss up to see whether or not we're going to see that.

But another thing I also wanted to highlight when we think about the trading action that we saw is that tech is back baby.

I mean, we saw the NASDAQ having its best uh we of the year and a lot of that has to do with the strength that we've seen in names like NVIDIA.

If you take a look over the past five days at a heat map here, you'll see in video is up nearly 16% along with some of those other mag seventeens like an Amazon Microsoft alphabet Broadcom up more than 22%.

And this follows a lot of positive commentary that we got this week from the Goldman Sachs Investor Conference.

A lot of the leadership within the chip sector including CEO Jensen Wong really talked positive about the demand.

And another story there is the hyper scalar and how much more aggressive they're going to be when it comes to spending on these A I chips.

And don't forget it was only about a month ago that we were at that August route and now look at where we are today.

Yeah, Jensen Wong, I mean, really helping there talking about, you know, his latest and greatest generation of chips, Blackwell, you know, talking about strong demand that really helped lift a lot of chip names.

Also to your point though, Ali a lot of these names have been really beaten up.

I mean Broadcom reported and got slammed, right.

And, and if we take a look at a longer term here, let's take a look at, let's take a look at a three month here.

You'll see the choppiness that we've still seen down roughly flat over the past three months.

So we'll see how we can play out towards the back half of the year and whether or not we'll see some momentum.

I think Q three earnings that's going to be really critical to see how some of these stocks can really sustain this recent rally.

And a lot of that is going to have to come down in demand.

You got another chip, a Miron memory chip giant reporting soon come up later this month.

Thank you all.

Thank you.

Appreciate it.