Wall Street hits record highs on rate cut bets

General market commentary

US equities closed at record highs on Tuesday, with the S&P 500, Nasdaq, and Dow Jones Industrial Average each setting fresh closing records. The rally was supported by optimism around artificial intelligence, expectations of lower borrowing costs, and a weaker labour market that reinforced the likelihood of Federal Reserve rate cuts at next week’s meeting. UnitedHealth and JPMorgan Chase were among the notable gainers, while Nebius surged nearly 50% on news of a multi-billion-dollar deal with Microsoft. However, Apple fell after its latest iPhone launch underwhelmed investors, while Broadcom also slipped. Overall, eight of the 11 S&P 500 sectors rose, led by communication services and utilities.

Bond yields remained stable, with the 10-year Treasury yield ticking higher but still near year-to-date lows, helping underpin returns in fixed income markets. Investors are now focused on this week’s inflation releases, with the US producer price index due today and consumer price index on Thursday. Both are expected to show inflation inching higher but not enough to dissuade the Fed from cutting rates, particularly in light of downward revisions to payroll data that revealed 911,000 fewer jobs than previously estimated. In Europe, equities were steady, with the STOXX 600 edging higher as merger-and-acquisition optimism offset political turmoil in France. Year to date, the S&P 500 has gained around 11%, while the Nasdaq is up 13%. However, for European investors, these gains have mostly been offset by a 11.6% loss on currency movements, highlighting the substantial impact of exchange rate fluctuations on cross-continental returns.

Latest market and economic update

Asian equities rose on Wednesday, led by South Korea and Hong Kong, following Wall Street's record highs. Japan's Nikkei hovered near historic peaks amid political uncertainty. However, China’s equities underperformed due to weaker-than-expected inflation, highlighting ongoing deflationary pressures. Regional markets saw modest gains overall.

US equity futures were little changed overnight as investors awaited key inflation reports. In after-hours trading, Oracle surged 28% after reporting a 1,529% jump in multicloud database revenue, driven by AI demand. The upbeat outlook for Oracle Cloud Infrastructure boosted sentiment, while focus remained on potential Fed rate cuts following revised US jobs data.

European equities closed slightly higher on Tuesday, with the STOXX 50 up 0.2% and the STOXX 600 edging higher. Markets navigated political instability in France, where Prime Minister Bayrou resigned, and fresh M&A activity, including Anglo American’s $20.2 billion acquisition of Teck Resources. Italian banks gained, supported by Banca MPS’s control of Mediobanca.

The dollar index held steady around 97.8 this morning after strengthening in the prior session, as investors awaited key inflation data. The euro was trading at 1.1708, with the softer-than-expected U.S. jobs data adding to expectations for a 25 basis point Fed rate cut next week, boosting prospects for further dollar weakness. Markets are pricing in 66 bps of easing this year.

Oil prices rose in Asia today, with Brent crude up 0.53% to $66.74 and WTI gaining 0.57% to $62.99. The market reacted to Israel’s attack on Hamas leadership and U.S. pressure on Europe to impose tariffs on Russian oil. However, weak market fundamentals and concerns over rising inventories capped gains, leaving prices vulnerable to decline.

China's inflation continued to shrink in August, with producer prices falling 2.9% year-on-year, marking the 35th consecutive month of negative inflation. Weak consumer spending, sluggish job growth, and U.S. trade tariffs are pressing on the economy, while extreme weather conditions also impacted demand. The data highlights the need for further economic support from Beijing.

French President Macron appointed Defence Minister Sébastien Lecornu as prime minister after François Bayrou’s resignation. Lecornu, a Macron ally, is tasked with securing National Assembly agreements to pass the budget and ensure political stability amid fiscal challenges and a fragmented parliament.

JPMorgan Chase CEO Jamie Dimon expressed caution about the U.S. economic outlook, warning that the full impact of tariffs and geopolitical issues has yet to unfold. He downplayed the significance of expected Fed rate cuts and reiterated concerns over recession risks. Dimon also hinted at more banking consolidation and confirmed plans for a digital bank in Germany by 2026.

Equities on the move

The following companies experienced moves in their share price driven by analyst ratings, quarterly earnings, or other news:

Oracle’s shares surged 28% in after-hours trading following an announcement that its Cloud Infrastructure (OCI) business is poised to surpass half a trillion dollars in booked revenue. The company reported a 359% increase in remaining performance obligations to $455 billion, with OCI revenue expected to grow 77% to $18 billion this fiscal year.

Apple introduced the iPhone Air, starting at $999, featuring a slimmer design, new A19 Pro processor, and improved energy efficiency. The iPhone 17 and 17 Pro were also launched, with no price hikes despite ongoing tariffs. Apple unveiled new AirPods Pro 3 with live translation, and a blood pressure monitor (pending approval) for the Apple Watch.

UnitedHealth shares rallied by over 8% after the insurer reaffirmed its 2025 earnings outlook and reported that around 78% of Medicare Advantage members are expected to be in 4-star or higher plans by 2027. Strong star ratings support government reimbursements, bonus payments, and enhanced benefits, bolstering growth and investor confidence.

U.S. brokerage Robinhood is launching Robinhood Social, a new in-app network for investors to share verified trades, follow others' activity, and discuss strategies. The platform will feature trades from major market players, including politicians and hedge funds. Available early next year, Robinhood Social is part of the company's expansion into a financial "superapp."

Google Cloud has secured approximately $58 billion in new revenue over the next two years, with a backlog of $106 billion in sales contracts. The division saw a 28% rise in new customers quarter-over-quarter. Despite contributing 14% of Alphabet's total revenue, Google Cloud is one of the fastest-growing sectors within the company, driven by AI demand.

Anglo American and Teck Resources plan to merge, creating the world’s fifth-largest copper company. Under the deal, Anglo shareholders will own 62.4% of the new Anglo Teck. The merger, valued at over $53 billion, aims to capitalise on growing copper demand. Anglo's CEO will lead the combined company, with cost savings expected by year four.

Nebius Group’s shares surged nearly 50% to a record $91.75 following a $17.4-billion AI infrastructure deal with Microsoft, potentially rising to $19.4 billion. The agreement strengthens Nebius’ position in high-performance AI data centres, supports its expansion plans, and highlights long-term revenue potential, while rival CoreWeave also gained from increased AI cloud demand.

Dutch chip equipment maker ASML has invested €1.3 billion to become the largest shareholder in French AI startup Mistral, taking an 11% stake and valuing the company at €11.7 billion. The partnership aims to integrate AI across ASML’s semiconductor equipment portfolio. ASML’s shares rose 1%, reflecting Europe’s ambitions to compete with U.S. AI leaders.

Banca Monte dei Paschi di Siena shares surged 6.3% after securing a 62% stake in Italy’s leading investment bank, Mediobanca, whose shares also rose 3.5%. The acquisition allows BMPS to consolidate control, appoint a new board, access €2.9 billion in deferred tax assets, and paves the way for CEO Alberto Nagel’s expected resignation by September 18.

The Dutch government plans to reduce its stake in ABN Amro from 30.5% to around 20%, continuing its gradual divestment following the bank’s 2008 financial crisis bailout. Valued at approximately €1.55 billion ($1.8 billion) at current market prices, the move is part of a long-term strategy to return ABN Amro to full private ownership, NLFI said.

Klarna has priced its U.S. IPO at $40 per share, valuing the company at $15.1 billion. The offering raised $1.4 billion and was 26 times oversubscribed. Shares will begin trading on the NYSE under "KLAR" later today. The buy-now, pay-later pioneer’s valuation dropped from $46 billion in 2021 to $6.7 billion in 2022 amid rising interest rates.

Barclays began coverage on European defence firms Rheinmetall, Hensoldt, Leonardo, and Saab, citing a long-term defence spending upswing. Rheinmetall is “overweight,” Hensoldt and Leonardo “equal weight,” and Saab “underweight.” Analysts expect revenue and margin growth but warn execution risks and national budget timelines could affect near-term performance.

J.P. Morgan views European banks as well-positioned, citing strong fundamentals, attractive valuations, and disciplined capital management. Trading at a 34% P/E discount with RoTE of 15–15.5% by 2027, upside is 15–25%, with BNP Paribas and Santander among favoured banks. Stable asset quality, high capital ratios, and strong shareholder returns support long-term resilience.

J.P. Morgan downgraded Commerzbank to “neutral” due to limited upside after strong gains, while keeping Deutsche Bank “overweight” with Positive Catalyst Watch ahead of its November Investor Deep Dive. Deutsche Bank shows broad divisional profitability, though both banks face risks from economic, regulatory, and market pressures.

Jefferies expects Hermès’ growth to moderate as its valuation premium over peers narrows, with leather products driving most expansion. Q3 organic growth is projected at 9.7%, slightly below consensus. EBIT is forecast to rise steadily to €7.59 billion by 2027. The brokerage maintains a “hold” rating with a €2,300 price target.

Citi upgraded Dick’s Sporting Goods to "Buy" after its merger with Foot Locker, raising the target price from $225 to $280. The bank forecasts combined sales of $22.5 billion by fiscal 2026, highlighting the company's increased buying power and synergies. Citi also sees potential for valuation gains and multi-year growth opportunities.

A Yardeni Research study highlights that S&P 500 earnings are expanding faster than anticipated, underpinning the index’s potential rise to 6,600 by year-end. Analysts note that this strong earnings growth provides fundamental support for the bull market, suggesting that recent gains may be sustainable rather than purely speculative, despite historical patterns of sharp corrections.

Upcoming data and events

Today's key economic data releases include the Producer Price Index (PPI), which will shed light on wholesale inflation, and the EIA Crude Oil Inventories report, offering updates on oil supply and demand. Among companies reporting today are Chewy in the US and Inditex in Spain.

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