Global equities are poised for a third consecutive week of gains as investors return to artificial intelligence-related trades, while easing U.S. inflation has bolstered market hopes that the Federal Reserve will hold off on raising interest rates.
The MSCI Asia-Pacific Index rose 0.3% on Friday, pushing the global all-country index toward its longest weekly winning streak since April. Both the global benchmark and the S&P 500 closed at record highs on Thursday, with semiconductor shares continuing their recovery following last month’s sell-off.
Despite recent oil price increases and ongoing tensions in the Middle East showing no signs of abating, money markets currently estimate only about a 35% chance of a September Fed rate hike. Two consecutive weeks of moderate inflation data, along with an employment report last week that came in below expectations, have eased pressure on policymakers to tighten policy at next month’s meeting, allowing stock traders to shift focus back to the revival of AI-related trading.
A modest easing of uncertainty around U.S. monetary policy has acted as a catalyst for the tech rally. With no signs of worsening inflation, excessive concerns over a hawkish pivot by the Fed have subsided, encouraging investors to buy high-growth stocks.
After a sell-off last month, momentum has returned to technology stocks. The prior decline stemmed from fears that the year’s hottest tech sector had surged too fast and too far. Strong earnings reports from several major tech companies have alleviated some concerns, drawing investors back into the AI space and lifting the Nasdaq 100 Index more than 1% on Thursday—the highest level since late June.
The Philadelphia Semiconductor Index gained 0.5%, closing at its highest level since mid-July. Asian chip-related stock indices rose nearly 1% on Friday, approaching their highest close since July.
Robert Kaplan of Goldman Sachs said it was “absolutely” the right decision for the Fed not to raise rates in July, urging policymakers to remain open-minded in September. He noted that the complex interplay between inflation and deflation makes rigid forward guidance counterproductive.
As investors reduced expectations for a Fed rate hike, short-term Treasuries outperformed longer-dated bonds. The yield spread between 30-year and 5-year Treasuries has widened for three consecutive weeks—the longest stretch since mid-April.
Although U.S. Treasury prices rose on Thursday, the country issued 30-year bonds at the highest yields in 25 years, highlighting the premium investors demand to compensate for the nation’s budget deficit.
“The upcoming round of data in September, along with preparations ahead of the meeting, will be crucial,” said Stephen Juno, economist at Bank of America Securities. Meanwhile, “given the dovish tone of recent data, markets clearly are beginning to increasingly anticipate a rate hike.”
