Heading into Wednesday's session, US stock futures are pointing higher across the board. As of the latest check, Dow Jones futures are up 0.26%, S&P 500 futures have gained 0.25%, and Nasdaq futures are leading with a 0.51% advance.
European markets are also showing strength, with Germany's DAX up 0.24%, the UK's FTSE 100 adding 0.60%, France's CAC 40 rising 0.53%, and the Euro Stoxx 50 trading 0.55% higher.
In the commodities space, oil prices are under pressure. WTI crude is down 2.38% to $103.31 per barrel, while Brent crude has slipped 1.49% to $107.13 per barrel.
The Fed Decision Takes the Spotlight
All eyes are on the Federal Reserve, which will unveil its interest rate decision and updated economic forecasts at 2:00 AM Beijing time Thursday. Fed Chair Kevin Warsh's press conference follows thirty minutes later. Just a month ago, markets assigned only a 33.1% probability to a rate hike at this meeting. That figure has now surged to nearly 95%, indicating investors are pricing in an almost certain move. If the Fed delivers, it would mark the first rate increase in over three years. However, the market's focus extends beyond the expected 25-basis-point hike to three critical signals: how the Fed interprets the oil price shock—whether it's a temporary blip or a force spreading into wages, services prices, and long-term inflation expectations; whether this is a one-off adjustment or the start of a new tightening cycle; and the extent of economic and market pressure Warsh is willing to tolerate to quell inflation.
White House pressure appears unlikely to deter the Fed's hawkish pivot. The rate hike, widely expected Wednesday and the first since 2023, reflects policymakers' waning confidence that inflation can cool sufficiently without central bank intervention. This is set to strain the relationship between Chair Warsh and President Trump. A hike could draw fresh criticism from the White House, with Trump reiterating as recently as Sunday his belief that the US should have the world's lowest borrowing costs. Since appointing Warsh to replace Powell, Trump has toned down his attacks on the Fed, even suggesting Warsh is being pressured by "very political" officials to raise rates. Yet, Warsh made clear in a late-August speech that underlying price pressures have not shown substantial improvement, stating the Fed "has work to do" unless it receives new assurances that inflation is on a path toward the 2% target.
Nomura Flips Hawkish, Sees Two Hikes This Year
In a notable shift, Nomura—traditionally a dovish voice on Wall Street—has abandoned its previous call for holding rates steady and turned decisively hawkish. The firm now projects the Fed will raise policy rates twice in 2025, by 25 basis points each in September and December, suggesting the easing cycle could extend further than anticipated. Nomura's reversal is driven by two key factors: signs that the anti-inflation campaign is stalling, and a policy communication style from the Fed's core leadership that leans more aggressively toward tightening. In Nomura's view, the stagnation in disinflation momentum is forcing the Fed to resume its restrictive stance. Additionally, Warsh's overtly hawkish tone represents a substantial departure from the market's previous assumptions of a prolonged pause, disrupting the status quo.
Jefferies Calls for S&P 8000, Cautions Against Fighting the Earnings Cycle
Jefferies is projecting the S&P 500 will surge to 8,000 points by the end of this year and reach 9,000 by 2027, driven by the AI investment boom and better-than-expected corporate earnings. The report argues that despite macro headwinds like rising 10-year Treasury yields, sticky inflation, and midterm election uncertainties, corporate fundamentals will remain the core driver of returns. The firm's logic is straightforward: in a cycle where earnings growth exceeds historical averages by more than double, fighting the earnings trend is dangerous. Jefferies also notes that AI-driven earnings expansion is broadening beyond the Magnificent Seven into the wider market, creating a more solid foundation. The firm recommends focusing on overweight positions in technology, financials, healthcare, and materials—sectors with strong earnings revisions and macro support—to capitalize on what it calls a rare earnings supercycle. However, Jefferies highlights two core risks: a material slowdown in AI-related earnings growth that could undermine the bull thesis, and a continued rise in 10-year Treasury yields, which could exert systemic pressure on equities through valuation compression.
Wells Fargo Trims S&P Target, Downgrades Tech
Wells Fargo chief equity strategist Ohsung Kwon has slashed his S&P 500 year-end target to 7,700 points from 7,950. The firm has also lowered the technology sector from an "overweight" to a "market weight" rating, citing growing risks from the upcoming midterm elections, especially amid increasing opposition to data center development. Kwon is increasingly concerned that years of earnings expansion have pushed market expectations near historic highs, while AI capital expenditures, state-level policy restrictions on data center construction, and fiscal and monetary policy uncertainty continue to escalate. Notably, the strategist expresses limited concern about 2027 earnings, but is cautious that a slowdown in AI data center-related capital spending could impact 2028 profits. This adjustment marks a reassessment of the market's longer-term growth and valuation outlook.
Individual Stock Movements
US optical communications stocks are seeing strong pre-market gains. Nokia (NOK.US) is up over 6%, while Coherent (COHR.US) and Lumentum (LITE.US) have each gained more than 3%. Corning (GLW.US), Marvell Technology (MRVL.US), Credo Technology (CRDO.US), and Astera Labs (ALAB.US) are all trading nearly 2% higher.
SK Hynix is reportedly in talks with Intel (INTC.US) for a deal that would bring memory chip production to the US for the first time. Potential structures include SK Hynix leasing parts of Intel's long-planned Ohio wafer plant, or forming a joint venture with Intel and major cloud companies seeking to secure memory supply. However, sources caution that potential opposition in South Korea could pose a significant hurdle. The discussions are said to be exploratory, with no decisions made, and SK Hynix may also consider other transaction structures. In a statement, SK Hynix said it is "evaluating various measures, including establishing more production bases to enhance memory business competitiveness," but "nothing has been decided at this point."
Meta (META.US) plans to deploy its next-generation in-house AI chip in data centers during the first half of 2027, aiming to cut energy consumption and costs associated with running AI models. The company has already committed to deploying over 1 gigawatt of capacity for the chip and indicates it could accelerate rollout if AI demand remains robust. Meta's VP of Engineering, Yee Jiun Song, stated that the company's third-generation AI processor, MTIA 450, codenamed "Arke," is now in testing. The first 12 Arke chips were delivered by TSMC on September 1, with actual performance showing only a 2-3% variance from simulation results.
Starbucks (SBUX.US) is considering selling a majority stake in its Japan business, a deal that could value the coffee giant's largest overseas operation at around $3 billion, according to two sources familiar with the matter. The company has consulted multiple financial advisors on options and is open to selling a majority interest. The final stake size and valuation hinge on negotiations. This potential divestiture comes as CEO Brian Niccol reshapes the global portfolio, closing stores and cutting corporate roles in North America to drive profitability. The process is expected to attract global and local private equity interest, with a formal sale process possibly launching in the fourth quarter.
Wall Street's trading desks are posting mixed signals for Q3. JPMorgan (JPM.US) co-President Doug Petno said Tuesday that trading revenue for the quarter ending September 30 is expected to rise in the mid-to-high teens percentage range, with investment banking fees potentially climbing at a similar pace. In contrast, Bank of America (BAC.US) CEO Brian Moynihan said the same day that Q3 revenue would be "roughly flat" compared to the same period last year, citing a pullback in financing activity partly due to slower Asia prime brokerage balances.
Key Economic Events Ahead
At 20:30 Beijing time, US August retail sales data is due. The Federal Reserve's rate decision follows at 02:00 AM, with Chair Warsh's press conference at 02:30 AM.
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