The Nasdaq Composite notched a perfect week of closing highs on Friday as investors took signs of weakening jobs and tame inflation to mean the Federal Reserve will lower interest rates next week.
The tech-heavy Nasdaq closed 0.44% higher to settle at 22,141.10, led by a surge in Tesla shares. The broad market S&P 500 hovered around the flatline, down just 0.05% to finish at 6,584.29. The blue-chip Dow Jones Industrial Average lost 273.78 points, or 0.59%, to close at 45,834.22. Having each closed at record levels Thursday, with the Dow finishing above 46,000 for the first time, the three major averages rounded out the weekly period with gains.
The S&P 500, which rose 1.6% week to date, saw its best weekly performance since early August and its fifth positive week in six. The Nasdaq secured its second winning week in a row with its 2% advance in the period, and the Dow posted its first positive week in three after seeing a week-to-date climb of 1%.
Investors are now gearing up for the Fed's decision on whether it will lower its benchmark interest rate on Sept. 17. Futures markets are pricing in a quarter percentage point cut with near certainty, according to the CME FedWatch tool.
The economic data released this week would support such a decision, according to Bill Northey, investment director at U.S. Bank Wealth Management. The consumer price index came in slightly hotter than expected for August on Thursday, but the usually crucial inflation report was overshadowed by weekly jobless claims, which showed an unexpected jump to the highest level since October 2021.
Those reports, as well as the downward revisions on job growth from the Bureau of Labor Statistics earlier this week, further confirm a "decelerating labor market" and that inflation "remains well contained," which "really sets up for a cut next week," Northey told CNBC.
"This is a Fed that is reluctant to surprise markets, and so as expectations have cemented around that 25 basis point rate cut, we think that they'll deliver against that," he said.
Northey added that through the Fed's press conference and its summary of economic projections, investors should be given more clarity on the central bank's median view regarding its outlook for both economic growth and inflation, along with what it considers appropriate in terms of monetary policy positioning against that.
"All three of those elements really play into what happens further out the interest rate curve," he continued. "This should be a very information-rich meeting that we see [in] the middle of next week."
