US markets close out the week just below record highs, fueled by optimism over the artificial intelligence trade, while investors lower their expectations for a rate hike by the Federal Reserve.
Key Takeaways
- US stocks were poised to finish the week just below record highs after a mixed day on Friday, as investors balanced enthusiasm over the artificial intelligence (AI) boom with uncertainty over the Federal Reserve’s policy direction.
- The S&P 500 closed at a record high of 7,798.99 on Thursday, August 13, after briefly topping the 7,800 level for the first time ever, while crude oil prices fell, also helping the markets.
- Markets were lower on Friday, but not by much, as investors weighed the likelihood of another rate hike by the Federal Reserve.
Markets Near Record Territory Heading Into the Weekend
US stocks closed out the week just below record highs, with the S&P 500 and Nasdaq Composite finishing higher for the week despite mixed messages from the Federal Reserve about its outlook for monetary policy.
The S&P 500 closed at a record high of 7,798.99 on Thursday, August 13, after briefly topping the 7,800 level for the first time ever, while the Nasdaq Composite finished at 26,803.03. The Dow Jones Industrial Average finished the week with a smaller gain. On Friday, futures pointed to a market that was poised to consolidate gains rather than retreat sharply.
AI Trade Continues to Power the Rally
The artificial intelligence (AI) boom was the main reason for the market’s strength this week, as big tech and infrastructure stocks continued to lead the charge. The AI theme has been a major driver of the recent market rally, with NVIDIA, in particular, seeing its shares rise more than 7% on Wednesday after announcing a partnership with several major asset managers to raise over $500 billion in funding for data centers and other infrastructure.
Other AI-related stocks had strong days as well, with Super Micro Computer shares jumping over 7.5% after the company reported better-than-expected earnings guidance, while Intel shares rose more than 4% after the company announced a $20 billion stock offering, which would be used to fund its foundry and AI businesses.
Traders Rethink the Fed’s Next Move
The other major factor influencing the markets this week was the outlook for interest rates, which has been a topic of debate for much of the year. For most of the year, markets have expected the Federal Reserve to cut rates at its July meeting, but that view has changed dramatically in recent weeks. Inflation has remained stubbornly high, despite the Fed’s efforts to reduce it, and several Fed officials have suggested that another rate hike may be necessary in the coming months. In particular, three of the twelve voting members of the Federal Reserve’s policymaking committee voted to raise rates rather than lower them at its most recent meeting.
Traders have also been adjusting their expectations for when the Federal Reserve will begin reducing its massive bond-buying program, which has been a major contributor to inflation in recent years. Heading into the weekend, traders were actually pricing in a lower probability of another rate hike by the Federal Reserve, which has allowed equity markets to continue their advance.
Oil Prices Add a Tailwind
Lower oil prices also contributed to the positive momentum in equity markets this week, as Brent crude fell more than 2% to settle around $87 per barrel, while US West Texas Intermediate fell to roughly $81 per barrel on Friday. The decline in oil prices has been driven by concerns that global demand for oil will fall in the coming months, which has led to fears of a recession. However, a more dovish outlook from the International Energy Agency (IEA) has tempered some of these concerns, as the IEA has predicted a slowdown in global economic growth that is not as severe as previously expected.
What This Means for Investors
The combination of record highs, mixed messages from the Federal Reserve, and strong performance from AI-related stocks suggests that markets are in for a period of consolidation in the near term. A few themes to watch in the coming days include:
- The Federal Reserve’s statements and actions will be critical in determining whether or not another rate hike is in the cards.
- The artificial intelligence (AI) boom shows no signs of slowing down, with NVIDIA’s recent $500 billion funding deal being just one example of the kind of spending that is likely to continue for years to come.
- The outlook for oil prices will be a key factor in determining the direction of the markets in the coming months, as geopolitical tensions in the Middle East continue to rage on.
- Strong earnings reports from companies like Super Micro Computer will be watched closely by investors who are looking to take advantage of the current market environment.
For now, Wall Street’s message to investors heading into the weekend was one of caution, as markets continue to consolidate gains made in recent months.
This article is for informational purposes only and does not constitute financial or investment advice. The information contained herein is subject to change without notice and may not be complete or up-to-date. Please consult with a qualified financial advisor before making any investment decisions.
