On Tuesday, Eastern Time, the Dow and the S&P 500 index closed basically flat, with both indices hitting new highs early in the morning, as investors prepared for the Federal Reserve's first interest rate cut in four and a half years.

Earlier released retail sales data eased concerns about a major slowdown in the US economy. Retail sales in August recorded 0.1%, higher than the expected decline of 0.2%, indicating that the US economy remained on a solid footing for most of the third quarter.

The CME's Fed rate watch tool shows that the market expects a 65% chance of a 50 basis point rate cut at this meeting. In recent days, expectations for the size of the rate cut have been unstable, leading to significant fluctuations in asset prices.

On the day before the Fed's decision, there was still controversy in the market about what action the central bank would take, which is extremely rare under Powell's leadership.

In fact, even the "Fed mouthpiece" Nick Timiraos is uncertain about the size of the rate cut. In his latest article, he said that the Fed will definitely cut interest rates this week, but whether the rate cut will be a larger 50 basis point or a traditional 25 basis point is still uncertain. The suspense is left until the last moment, and Powell and his colleagues need to carefully weigh their options.

Jeffrey Gundlach, CEO of DoubleLine Capital, said he expects the Fed to cut benchmark interest rates by 50 basis points on Wednesday and a total of 125 basis points by the end of the year. He believes that the US economy is already in recession and that the Fed's tightening policy has lasted too long.

However, some investors believe that a larger rate cut could raise concerns about the health of the economy. Adam Turnquist, Chief Technical Strategist at LPL Financial, commented, "A 50 basis point rate cut may further suggest a pessimistic view of the labor market by the Fed, which would be a more worrisome sign."

Miller Tabak analyst Matt Maley claims that the Federal Reserve will either cut interest rates by 50 basis points or choose to cut rates by 25 basis points, but suggests that they will take more aggressive measures in the future, and given that US stocks are approaching overbought territory, there is a high probability of a decline after the decision is made.

Market Dynamics

At the close, the Dow fell 15.90 points, or 0.04%, to 41,606.18 points; the Nasdaq rose 35.93 points, or 0.20%, to 17,628.06 points; and the S&P 500 rose 1.49 points, or 0.03%, to 5,634.58 points.

The 11 sectors of the S&P 500 index have varied performance, with the healthcare sector falling by more than 1%, the information technology/technology sector falling by 0.09%, the telecommunications sector rising by more than 0.4%, the financial sector rising by more than 0.5%, the consumer discretionary sector rising by more than 0.6%, and the energy sector rising or falling by 1.41%.

US industry ETFs have mixed performance, with the global aviation industry ETF closing up 1.81%, the energy industry ETF rising by more than 1.3%, the regional banks ETF, banking industry ETF, financial industry ETF, and consumer discretionary ETF rising by up to 0.8%, and the semiconductor ETF experiencing a slight decline of less than 0.1%.

Popular stocks performance

Large-cap tech stocks rose across the board, with Amazon and Netflix up more than 1%, while Apple, Microsoft, Tesla, Google, and Meta saw small gains and Nvidia fell more than 1%.

Intel rose 2.7%. Earlier, the company announced that it had adjusted the layout of its chip foundry business and signed an agreement with Amazon Web Services to jointly develop an AI chip using the 18A chip manufacturing process.

Popular Chinese concept stocks rose, with the Nasdaq Golden Dragon Index up 1.83%. Li Auto Inc. rose more than 12%, iqiyi rose more than 4%, and bilibili rose more than 3%.

Company news

BlackRock and Microsoft are planning to establish a $30 billion fund to focus on AI and energy needs.

According to informed sources, BlackRock is preparing to launch a $30 billion artificial intelligence investment fund in collaboration with tech giant Microsoft. The fund aims to build data centers and energy projects to meet the growing demand of AI. BlackRock will launch the fund in partnership with its new infrastructure investment division, Global Infrastructure Partners, making it one of the largest investment tools on Wall Street. Microsoft and Abu Dhabi-supported investment firm MGX are the fund's general partners. Informed sources also said that chipmaker Nvidia will provide expertise. The investment tool aims to address the staggering power and digital infrastructure needs in building AI products, as these products are expected to face serious capacity constraints in the coming years. The computational power of AI requires more energy than previous technological innovations and puts strain on existing energy infrastructure.

JP Morgan is in talks with Apple to take over its credit card business from Goldman Sachs. According to an insider, JP Morgan is one of the many credit card issuers exploring the possibility of replacing Goldman Sachs in this venture. The collaboration with Goldman Sachs began about five years ago when the Wall Street giant sought to strengthen its consumer banking business, but later withdrew gradually. The deal is expected to take several months to finalize, and there is no guarantee that a deal will be reached due to key details such as price that are still under negotiations. Apple has also approached potential replacements such as Synchrony Financial and Capital One Financial Corp.

Elon Musk's brain-machine company Neuralink has obtained breakthrough medical device certification from the U.S. Food and Drug Administration (FDA) for its 'Blindsight' project. This project aims to help blind people regain vision. Devices with breakthrough device certification can receive early support from the FDA, accelerating their research and market approval process.

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