S&P500 and Nasdaq 100: Will Cooling Inflation and China Stimulus Maintain Bullish Sentiment?

E-mini Index Performances Support Market Optimism

E-mini futures for the S&P 500, Nasdaq-100, and Dow Jones all posted gains last week, reflecting broader market strength. The E-mini S&P 500 futures rose 0.51%, closing at 5791.25, while the E-mini Nasdaq-100 climbed 0.96%, closing at 20221.50. Similarly, E-mini Dow futures gained 0.50%, ending at 42656. These performances contributed to the third consecutive weekly advance for major U.S. indices​​.

Cooling Inflation Sparks Optimism

A major catalyst for the rally was the latest inflation data. The Personal Consumption Expenditures (PCE) price index, a key inflation gauge favored by the Federal Reserve, increased by only 0.1% for August, aligning with expectations. On an annualized basis, the PCE rose 2.2%, slightly below the anticipated 2.3%. This cooling of inflation reinforced hopes that the Fed may ease its monetary policy further, potentially cutting rates in the near future. Investors took this as a positive signal, lifting both equity and bond markets throughout the week​​.

China’s Stimulus Boosts Commodities and Stocks

Global markets also benefited from China’s economic stimulus measures. The People’s Bank of China implemented aggressive monetary policies to revitalize the country’s economy, including a reduction in the reserve requirement ratio. This prompted rallies in Chinese stock ETFs, with the iShares MSCI China ETF (MCHI) and iShares China Large-Cap ETF (FXI) surging by more than 18%, marking their best weekly performance ever​​.

China’s stimulus also bolstered U.S. sectors with significant exposure to Chinese demand, particularly in metals and mining. The SPDR S&P Metals & Mining ETF (XME) jumped 6.33%, with companies like Freeport-McMoRan and Albemarle seeing significant gains. Industrial stocks like Caterpillar, benefiting from both U.S. infrastructure plans and China’s recovery efforts, also rose over 3%​​.

Sector Highlights: Technology and Materials Lead the Way

Semiconductor stocks were another standout, driven by Micron Technology’s strong earnings and positive forward guidance. Micron’s shares soared by 18.26% last week, lifting the broader semiconductor sector. Applied Materials and Lam Research also gained 6.64% and 6.97%, respectively, highlighting the robust demand for AI-related technology​​.

The materials sector posted its best weekly performance of the year, gaining 3.4%. Freeport-McMoRan led the charge with a 15.29% increase, while Albemarle and Celanese climbed 11.65% and 9.75%, respectively, buoyed by rising commodity prices​.

Forecast for Next Week: Focus on Inflation and Jobs Data

Looking ahead, the stock market’s direction next week will depend heavily on key economic data, particularly the September jobs report and upcoming inflation figures. If inflation continues to ease, the Fed may cut rates, further supporting the rally. However, any signs of labor market weakness could introduce volatility. While the outlook remains positive, traders should stay alert to potential shifts in Fed policy and economic indicators​​.