Stocks notched another week of record highs as investors bet on a Fed interest rate cut this week.
The central bank is widely expected to prioritize a cooling labor market even as sticky inflation complicates the picture, with investors overwhelmingly betting on a quarter-point cut. Futures markets put the probability at north of 90%, according to the CME FedWatch tool.
That sets the stage for a pivotal week in markets, where the Fed’s call could determine whether the rally has more room to run.
The three major indexes closed mixed on Friday, but all logged solid weekly gains. The Dow Jones Industrial Average (^DJI) rose nearly 1% for its first winning week in three weeks, while the S&P 500 (^GSPC) and the tech-heavy Nasdaq Composite (^IXIC) turned in their best weekly performances since early August. Treasury yields hovered near recent lows, while gold (GC=F) set fresh records as markets braced for a potential Fed pivot.
Beyond the Fed, the calendar brings a weekly update on jobless claims and fresh manufacturing data, offering more signals on the strength of the economy.
Mortgage rates will also be in focus after posting their biggest weekly drop in a year last week. The average 30-year fixed mortgage rate slipped to 6.35% from 6.5% the prior week, according to Freddie Mac.
Meanwhile, earnings season is winding down, but a handful of bellwethers remain. FedEx (FDX) is the main event, as results from the delivery giant are often viewed as a proxy for the health of global trade and the broader US economy.
Investors will also get updates from homebuilder Lennar (LEN), food giant General Mills (GIS), and restaurant operator Darden (DRI). Cracker Barrel (CBRL), which has made headlines in recent weeks over its back-and-forth rebrand, rounds out a more subdued docket.
The Fed’s interest rate decision, along with Chair Jerome Powell’s subsequent press conference, will be the key economic event of the week. Alongside its policy decision, the Fed will release its quarterly “dot plot” — a snapshot of policymakers’ projections for the path of interest rates.
In June, officials penciled in two rate cuts for 2025, although the forecasts revealed a more divided committee. Seven members saw no cuts at all, compared with four in March. Powell acknowledged the divergence at the time, stressing that “right now it’s just a forecast in a very foggy time.”
Investors will be looking for more clarity this week, but the backdrop isn’t straightforward.
Tariffs are increasingly feeding into inflation after US customs duties surged to a record $29.5 billion in August following President Trump’s new “reciprocal” levies.
Read more: How jobs, inflation, and the Fed are all related
August’s Consumer Price Index (CPI) showed stubborn price pressures across categories such as food, vehicles, and household goods. Coffee, beef, and produce all spiked. Car parts, furniture, and even hardware equipment also moved higher. But not all of the stickiness is tariff-related. Services inflation remains elevated as well, with airline fares surging nearly 6%.
At the same time, labor market weakness has become harder to ignore. Jobless claims just hit their highest level in nearly four years. Payrolls grew by only 22,000 in August, while government revisions also revealed that nearly 1 million fewer jobs were created in the 12 months through March 2025 than initially reported.
That leaves Powell facing a difficult balance: Cut too slowly and risk a deeper labor downturn, or move too quickly and reignite inflation.
Fresh consumer data will add to the picture for policymakers. Tuesday brings the August retail sales report, a key gauge of household demand.
Read more: August CPI report shows consumers feeling the heat of accelerating inflation
Amid that backdrop, Main Street is flashing caution. AAII’s latest survey found just 28% of investors identifying as bullish and nearly half as bearish — a gloomy read even as stocks hover at record highs.
Wall Street, by contrast, is leaning into optimism. Strategists at Deutsche Bank, Wells Fargo, Barclays, and Yardeni Research all raised their S&P 500 targets last week, citing resilient earnings and the still-surging AI investment cycle as the backbone of the market’s next leg higher.
Deutsche Bank lifted its 2025 forecast to 7,000, the most bullish among last week’s upgrades. Wells Fargo set a year-end target of 6,650 and sees the benchmark climbing to 7,200 by 2026. Barclays raised its 2025 outlook to 6,450. Yardeni Research boosted its year-end target to 6,800, assigning a 25% chance of a “melt-up” to 7,000 by December.
The mix of sticky inflation, weakening jobs data, and lofty valuations has sharpened focus on the rally’s vulnerabilities, particularly its reliance on a narrow band of megacap tech stocks.
Wells Fargo acknowledged the presence of market “froth” but argued the bull run can continue as long as AI capital spending remains intact. Barclays strategist Venu Krishna echoed that view, highlighting strong demand for data center infrastructure and calling fears of AI disruption in software “overblown.”
That AI momentum was underscored last week by Oracle (ORCL), which saw its stock surge more than 30% on Wednesday after the software giant projected its AI-driven cloud revenue would soar to $144 billion by fiscal 2030. The move reinforced Wall Street’s conviction that artificial intelligence remains the defining investment theme of the cycle.
As Wells Fargo strategist Ohsung Kwon put it: “Music stops when AI capex stops. Enjoy the party.”
Economic data: Empire State Manufacturing Survey, September (4.9 expected, 11.9 previously)
Earnings calendar: Dave & Buster’s Entertainment (PLAY)
Economic data: Retail sales preliminary reading, month-on-month, August (+0.3% expected, +0.5% previously); Retail sales ex auto and gas, month-on-month, August (+0.5% expected, +0.2% previously); Import price index, month-on-month, August (+0.4% previously); Import price index, year-on-year, August (-0.2% previously); Export price index, month-on-month, August (+0.1% previously); Export price index, year-on-year, August (+2.2% previously); Industrial production, month-on-month, August (0.0% expected, -0.1% previously); Capacity utilization, August (77.4% expected, 77.5% previously); Business inventories, July (+0.2% expected, +0.2% previously); NAHB Housing Market Index, September (32 previously)
Earnings calendar: Ferguson Enterprises (FERG)
Economic data: FOMC Rate Decision (4%-4.25% expected, 4.25%-4.5% previously); MBA mortgage applications, week ending Sept. 12 (+9.2% previously); Housing starts, August (1.37 million expected, 1.42 million previously); Building permits preliminary reading, August (1.37 million expected, 1.36 million previously); Housing starts, month-on-month, August (-3.7% expected, +5.2% previously); Building permits, month-on-month, August (+0.6% expected, -2.2% previously)
Earnings calendar: General Mills (GIS), Bullish (BLSH)
Economic data: Initial jobless claims, week ending Sept. 13 (263,000 previously).
Earnings calendar: FedEx (FDX), Lennar Corporation (LEN), Darden Restaurants (DRI), FactSet Research Systems (FDS), Cracker Barrel (CBRL)
Economic data: No notable economic data releases.
Earnings calendar: No notable earnings.