Market Overview
US equities staged a robust rally, achieving their strongest daily performance in over a month, as investors digested the Federal Reserve’s recent interest rate hike amidst a retreat in global bond yields and easing concerns over Middle East oil supply disruptions. This combination helped to temper inflation fears. The positive momentum from Wall Street is expected to spill over into the APAC session, with Australian shares set to open higher. Investors in the APAC region will be closely monitoring upcoming policy statements from the Reserve Bank of Australia (RBA) and the Bank of Japan (BoJ), with the latter widely anticipated to raise its key interest rate by 25 basis points to 1.25 per cent.
Markets
On Wall Street, major indices closed significantly higher. The S&P 500 (^GSPC) advanced 1.14% to close at 7,637.76, while the Nasdaq Composite (^IXIC) ended the day up 1.69% at 26,418.30. The Dow Jones Industrial Average (^DJI) finished 0.61% higher at 51,778.04.
ASX 200 futures were tracking higher, up 0.6% to 8826 near 6.30am AEST, signaling a positive start for Australian shares.
In the commodities market, oil prices eased. Brent Crude (BZ=F) traded at $104.27, declining 1.47%, and WTI Crude (CL=F) stood at $101.30, down 1.10%. Gold (GC=F) traded at $4,381.10, recording a 0.15% decline. Iron ore traded at $US96.30 a tonne, up 0.5%.
Bond yields retreated, with the US 10-Year Treasury yield (^TNX) at 4.947%, down 5.90 basis points, and the US 30-Year Treasury yield (^TYX) at 5.296%, down 5.30 basis points. The Australian 10-year yield stood at 5.30%.
In currencies, the Australian Dollar (AUDUSD=X) traded at 0.7113, down 0.18%. Bitcoin (BTC-USD) traded at 76,478, up 0.43%. The CBOE Volatility Index, VIX (^VIX), stood at 15.44, down 12.82%.
What Drove Markets
US equities rallied after initially reacting negatively to the Federal Reserve’s quarter-point interest rate hike—the first in three years—which moved the federal funds rate target range to 3.75%-4.00% from 3.50%-3.75%. The Federal Open Market Committee (FOMC) unanimously voted for this increase. Fed Chair Kevin Warsh commented that inflation remained too high and had been so for too long, asserting that his Fed would err on the hawkish side.
However, markets rebounded as investors “slept on” the decision, according to Bespoke Investment, and then focused on the subsequent retreat in long-term Treasury yields. King Lip of BakerAvenue Wealth Management suggested that a central bank’s willingness to be unpopular could be a bullish signal. He also observed that the market was becoming receptive to the idea that the Fed could contain inflation without triggering a major economic slowdown. Earlier in the week, the US 10-year Treasury yield had reached its highest level since April 2007, and the 30-year yield hit a fresh high not seen in over 24 years. Pantheon, however, assessed US economic growth of 5% as “unrealistically strong.”
A significant contributor to the market rally was the decline in oil prices for a second consecutive session. This retreat was attributed to easing fears of supply disruptions in the Middle East following reports that Saudi Arabia was making progress in restoring capacity to its East-West pipeline and offering more crude cargoes to Asian refiners via ship-to-ship transfers off Oman’s Sohar port. This development helped alleviate concerns over wholesale energy inflation. US President Donald Trump commented, “hopefully we’re toward the end of the war” and that “Iran is very much wanting to make a deal.” Separately, he stated his opinion on US interest rates, saying they “should be 1%, or less” and adding, “I want [the Fed] to be independent, but my opinion — I’m very good at this stuff — is interest rates are too high.”
Looking ahead, Capital Economics’ chief markets economist Jonas Goltermann expects two more 25 basis point hikes from the Fed in December and March. For the APAC region, New Zealand is set to release August food price and trade data at 8.45am (AEST).
Stocks to Watch
Generac (GNRC) rocketed 18.3% higher, ending as the top percentage gainer on the S&P 500, after inking a long-term supply agreement with Amazon. Initial deliveries are projected to be $2.4 billion across 2027 and 2028, with a total purchase target potentially reaching $8 billion over the agreement’s life. As part of the deal, Amazon will also receive an equity warrant allowing it to buy up to about 1.69 million Generac shares.
Robinhood Markets added over 5%, boosted by a Securities and Exchange Commission announcement on guidance permitting digital versions of securities to trade in the U.S.
Several technology and chipmaking stocks saw significant gains, contributing to the broader market advance:
- Intel (INTC) closed up 7.67% at 108.80.
- AMD (AMD) finished 6.36% higher at 545.09.
- Micron (MU) climbed 5.50% to 977.50.
- Oracle (ORCL) jumped 5.19% to 150.59.
- Nvidia (NVDA) rose 2.54% to 219.34.
- Amazon (AMZN) gained 2.13% to 251.19.
- Microsoft (MSFT) was up 1.52% at 497.75.
- Alphabet (GOOGL) advanced 1.30% to 347.33.
- Meta (META) rose 1.34% to 682.31.
JPMorgan advises investors to be cautious, while Citadel’s Rubner believes US stocks are poised to turn a corner. Corporate America is embracing cash preservation.