Rate cut optimism bolsters market

Briefing.com Summary:

*The market is keying on the prospect of future rate cuts.

*NVIDIA has made a $5 billion equity investment in Intel.

*A drop in initial jobless claims and a surge in the Philadelphia Fed Index have triggered a curve-steepening trade in the Treasury market.

The stock market vacillated following yesterday’s FOMC decision and the release of the Summary of Economic Projections, but there isn’t much vacillation this morning.

Currently, the S&P 500 futures are up 34 points and are trading 0.5% above fair value, the Nasdaq 100 futures are up 220 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 80 points and are trading 0.2% above fair value.

Those indications will be a launch point for new record highs, ignited by the prospect of further rate cuts that were teased in the Summary of Economic Projections and wrapped up in Fed Chair Powell’s emphasis on the downside risks to employment over the upside risks to inflation.

There is room for debate about the policy path, yet the fed funds futures market at the moment seems to have a pretty clear vision. The probability of a 25 basis point cut to 3.75-4.00% at the October FOMC meeting is 87.7%, versus 78.2% before yesterday’s announcement, while the probability of another 25 basis point cut to 3.50-3.75% at the December FOMC meeting is 80%, versus 72.8% before yesterday’s announcement.

Today’s early enthusiasm is being attributed in large part to that expectation, but it isn’t the only driver.

There is a buzz in the semiconductor industry after NVIDIA (NVDA) announced a $5 billion equity investment in Intel (INTC) at a price of $23.28 per share. That investment and the government’s ownership stake in Intel are off to a good start, seeing that Intel is trading up 30%, or just north of $32.00 per share, in pre-market action.

This news has overshadowed a disappointing earnings miss by Darden Restaurants (DRI) and a Q3 earnings warning from Nucor (NUE). This morning’s economic data have also overshadowed those happenings, but at the same time, they have cast some concern about the Fed easing into an economy that is still performing well in aggregate.

Initial jobless claims for the week ending September 13 decreased by 33,000 to 231,000 (Briefing.com consensus: 245,000) following an upwardly revised 264,000 (from 263,000) in the prior week. Continuing jobless claims for the week ending September 6 decreased by 7,000 to 1.920 million.

The key takeaway from the report is that initial claims settled back from what appeared to be an aberrantly high level in the prior week, returning to an area that is more consistent with a job market where layoff activity is relatively low.

Separately, the Philadelphia Fed Index surged to 23.2 for September (Briefing.com consensus: 3.0) from -0.3 in August, with the new orders index climbing to 12.4 from -1.9 and the prices paid index dropping to 46.8 from 66.8. The dividing line between expansion and contraction for this report is 0.0, so the September reading represents an acceleration in manufacturing activity in the Philadelphia Fed region.

The key takeaway from the report is found in the welcome combination of stronger growth and fading prices.

It appears that the growth takeaways are registering more in the Treasury market, where a curve-steepening trade is underway. The 2-yr note yield is up one basis point to 3.56%, versus 3.53% before the data, while the 10-yr note yield is up two basis points to 4.10%, versus 4.06% before the data.

The move in Treasuries has sapped some of the strength in the equity futures market, yet the indices are still ready to flex at the open.

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Originally Posted September 18, 2025 – Rate cut optimism bolsters market