Mixed Bag. Stocks turned in an uneven performance on Tuesday, with renewed AI optimism driving the Nasdaq Composite to a new high, even as the other major indexes struggled.
The Nasdaq rose 0.5% Tuesday to close at a second straight record. The S&P 500 was flat. The Dow Jones Industrial Average fell 185 points, or 0.4%.
Meta's new Muse AI, its personal assistant released earlier this month, jumped to the top of the Apple Store. Shopify and PayPal have moved quickly this week to join with Meta on Muse. My colleague Josh Shafer explained what the latest moves mean for investors.
Oil prices trended lower again after Saudi Arabia successfully restarted its critical East-West Pipeline and Iran proposed a conditional path to reopen the Strait of Hormuz. President Donald Trump met with Gulf states today on the sidelines of the United Nations General Assembly in New York. My colleague Sabrina Escobar wrote that the Gulf leaders will likely be looking for more clarity on how the president plans to wrap up the Iran war
"Against this backdrop, it would be surprising if the Gulf states weren't looking to distribute their diplomatic, defense, and economic eggs across a greater number of baskets," writes Tom Holland, deputy global research director at Gavekal Research.
Earlier in the day, during his 35-minute address at the U.N., Trump threatened to "annihilate" Iran and reiterated his administration's "peace through strength" approach to foreign policy. He said he was prepared to take military action to accomplish his goals.
The speech neutralized hopes of an Iran peace deal in the coming weeks, with Trump saying he expects something to emerge after the midterm elections.
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The Hot Stock: Monolithic Power Systems +8.1% The Biggest Loser: Gen Digital -6.4%
Best Sector: Materials +1.9% Worst Sector: Financials -2.0%
The New Inflation Word? Persistent
Among the first Federal Reserve officials to give insights into the central bank's decisions to raise interest rates last week, regional presidents Austan Goolsbee and Tom Barkin are convinced that following the usual script of looking through supply shocks won't pass muster this time.
"There was an argument that inflation would return to target on its own, without any additional help from the Fed," Richmond Fed's Barkin said of the discussions prior to last week's meetings. "The idea was that as inflationary shocks passed, so would high inflation."
But Barkin said Tuesday that the biggest issue with looking through shocks at the moment is that they're not proving to be short-lived or one-off events. His view echoed comments by Chicago Fed's Goolsbee on Monday.
"These days, when you see a large supply shock, it's usually more accurate to assume it will be persistent than to assume it will quickly go away. That's certainly been the U.S. experience over the last six years," Goolsbee said.
Goolsbee is monitoring not just at how fast inflation is cooling down, but also how specific components are behaving. If services inflation, for example, remains firm or even starts to creep higher, Goolsbee says that would make him "uneasy"-even if the aggregate rate cools.
On Tuesday, Barkin said that while "not that much" had changed in the inflation trajectory in the most recent data, that was precisely the issue.
The demand picture in the U.S. has remained solid, with consumer spending and business investment still steady. That indicates monetary policy isn't all that restrictive. Inflation, meanwhile, remains more than a percentage point above the Fed's 2% target. And he's hearing from businesses that pricing pressures are building, in large part because there are more costs to pass on.
That's a "problem," Barkin said, and noted it was "precisely why" it was appropriate for the Federal Open Market Committee to raise the fed funds range by a quarter of a percentage point to 3.75% to 4% last week.
"The risks to inflation outweigh the risks to maximum employment. That's why we raised rates," Barkin said. Neither Barkin nor Goolsbee are currently voting members of the FOMC, but they both will be next year.
The Calendar
Cintas, General Mills, and Paychex release earnings tomorrow.
S&P Global releases both its Manufacturing and Services Purchasing Managers' Indexes for September. The consensus estimates call for a 53.6 reading for the Manufacturing PMI and a 56 reading for the Services PMI. Both readings are roughly half a point less than the August figures.
What We're Reading Today
Meta's Muse Shakes the Stock Market. AI Disruption Fears Are Back.
Apple on Track to Close at $5 Trillion Market Cap
Why Bitcoin and Crypto Stocks Have Been on a Tear
Trump's Diplomatic Push Takes Center Stage at U.N.
Paper Bottles Are Coming to Shelves. The Sustainable Swap Is Finally Here.
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