S&P 500 Index: Oil Retreat Fuels Rally Despite 85% Fed Rate-Hike Odds

Market Overview

The S&P 500 experienced a rally as crude oil prices fell below $100, despite the probability of a Federal Reserve rate hike surging to 85.6% following the release of the Consumer Price Index (CPI) data. The Dow Jones Industrial Average gained nearly 600 points, while both the S&P 500 and Nasdaq Composite increased by approximately 1% after four consecutive days of losses.

Key Market Movements

• Crude oil prices dropped about 3%, with WTI trading below $100 and Brent also retreating.
• The Dow was on track for a 2.5% weekly loss before the rally on Friday.
• September E-mini S&P 500 Index futures rose to 7,675.00, marking a 1.01% increase.

Technical Analysis

The E-mini S&P 500 Index futures showed a significant upward movement after crossing above the 50-day moving average. The main trend remains down according to the daily swing chart, but the recent rally indicates a potential counter-trend movement. A trade through 7,585.50 would signal a resumption of the downtrend, while surpassing 7,766.50 could indicate a trend reversal.

Inflation and Rate Hike Odds

The August CPI rose by 0.4% from July and 3.4% year-over-year, aligning with expectations. The core CPI increased by 0.3%, slightly above forecasts, leading to a rapid repricing of Fed funds futures and raising the odds of a quarter-point rate hike to 85.6%. The 2-year Treasury yield reached its highest level since July 2024, although stock prices rallied due to the decline in crude oil prices.

Consumer Sentiment

The University of Michigan consumer sentiment index fell to 47.8 in September from 51.7 in August, indicating a decline in consumer confidence. Inflation expectations for the year ahead increased to 4.6% from 4.0%, while five-year expectations rose to 3.4%.

Stocks in Focus

Dell Technologies saw a significant increase of over 10% following an outperform rating from RBC, driven by demand for AI infrastructure. Other notable movements included:

• Oracle, which initially surged 10.3% post-earnings, lost its gains by the afternoon.
• Vicor rallied 11% due to a manufacturing expansion announcement.
• GameStop gained nearly 3% after CEO Ryan Cohen disclosed the purchase of an additional 1 million shares.
• NuScale Power dropped 14% following a downgrade to sell by UBS.

Outlook

The recent rally in the S&P 500 has mitigated some of the week's losses, primarily driven by the drop in crude oil prices. The upcoming Federal Reserve decision on interest rates will be a critical event to watch, as will the meeting between Iran and Gulf states regarding the Strait of Hormuz, which could impact oil supply dynamics.