For markets, the question is no longer whether the Federal Open Market Committee will cut interest rates when it meets next week. Investors, traders and speculators now wonder how big the move will be at the next Fed meeting. They’ll look to this week’s incoming economic data, including fresh producer and consumer price numbers, for additional guidance.
According to CME Group FedWatch, it is 100% certain Jerome Powell & Co. will trim the target range for the federal funds rate from 4.25% to 4.50%. The greater probability is 25 basis points, or 0.25%, at 88.2%. Recent action reflects rising belief in a 50-basis-point move, up to 11.8% from 0.0% a week ago.
A “tepid” August jobs report means “it will likely take a major upside surprise from this week’s inflation data to derail a Fed rate cut next week,” according to E*TRADE from Morgan Stanley Managing Director Chris Larkin.
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Larkin notes that even though stocks are trading near new highs, “Friday’s volatility also highlights a possible crack in the market’s ‘bad news is good’ mentality.”
Indeed, focus may have already shifted from the pressure of tariffs on prices to their impact on economic growth. And markets “may be less inclined in the near term to shrug off additional signs of a slowing,” as Larkin sees it.
The appetizer and the main course on this week’s economic calendar, the Bureau of Labor Statistics will release the Producer Price Index (PPI) before Wednesday’s opening bell and the Consumer Price Index (CPI) before Thursday’s.
By Monday’s closing bell, the blue-chip Dow Jones Industrial Average had added 0.3% at 45,515, the broad-based S&P 500 was up 0.2% to 6,495, and the tech-heavy Nasdaq Composite had risen 0.5% to a new closing high of 21,798.
Will Apple ever ‘awe’ us again?
Apple (AAPL, -0.8%) was among the bottom four Dow Jones stocks closing in the red Monday, despite CEO Tim Cook’s promise of an “awe dropping” event for the iPhone maker on Tuesday.
CFRA Research analyst Angelo Zino reiterated his Buy rating and his $261 12-month target price for AAPL stock on the eve of its hardware event.
Zino expects Apple to introduce four iPhone models, “with a new iPhone 17 Air (ultra-thin design, replacing the Plus model) taking center stage.” Zino cites potential enhancements such as camera upgrades, smaller bezels, new processors and new colors.
“Pricing will be key,” the analyst notes, adding that he assumes no increases following President Donald Trump’s suggestion that Apple is safe from tariffs.
AAPL was one of three Magnificent 7 stocks to close lower on Monday, joining Alphabet (GOOGL, -0.3%) and Tesla (TSLA, -1.3%).
As LPL Financial Chief Technical Strategist Adam Turnquist notes, the Mag 7 mega-caps generated solid returns last week on a favorable antitrust ruling that will allow Apple to keep paying Alphabet to use its Chrome browser on its iPhones. And chipmaker Broadcom (AVGO, +3.2%) reported solid earnings, providing additional lift for stocks and sectors related to the AI revolution.
Turnquist explains that the equal-weight Bloomberg Magnificent Seven Index added more than 2% last week and is up about 50% from its April 8 post-Liberation Day low.
“The mega-cap spotlight this week turns to Apple,” Turnquist concludes. “Given that the iPhone contributes to just over 50% of AAPL’s revenue, and Wall Street is expecting sales growth in phones to accelerate next year, the new launch will likely need to be ‘Awe-dropping’ as advertised.”
Klarna leads a big IPO week
Klarna (KLAR) leads the biggest initial public offering (IPO) week since 2021, according to Renaissance Capital Research CEO Bill Smith. The buy now, pay later platform plans to sell 34.3 million shares at $35 to $37 per share to generate proceeds of approximately $1.3 billion.
Should the Klarna IPO come off at these levels, KLAR stock would bear a market cap of approximately $14 billion. The KLAR IPO is on track for Wednesday.
It’s one of six deals that aim to raise more than $100 million this week, including four on Friday. On Thursday, Figure (FIGR) is scheduled to complete an offering that would value the blockchain-based lender at approximately $500 million.
Crypto currency exchange Gemini Space Station (GEMI), engineering outfit Legence (LGN), public transportation rideshare platform Via Transportation (VIA) and specialty beverage company Black Rock Coffee (BRCB) are sure to generate interesting price action on Friday.