After encountering a "black opening" in the first week of September, the U.S. stock market basically reclaimed its lost ground in five days.

With the Fed's unexpectedly loose expectations re-emerging, the decline in U.S. Treasury yields and the strong performance of technology stocks have boosted market confidence.

However, concerns about the U.S. job market have not been alleviated.

Whether the Fed will take preemptive aggressive rate cuts to avoid a possible recession has become the focus of market attention, which will also become the fuse for short-term changes in risk appetite and volatility.

The suspense of the Fed's decision-making has become a hot topic.

As the most critical data before the Fed's September decision, the U.S. Consumer Price Index (CPI) in August increased by 2.5% year-on-year.

While energy prices have declined, the rise in rent and service costs means that the risk of core inflation stickiness remains high.

After the gradual dissipation of price pressures, the Fed is now focusing on the labor market, which has seen a significant slowdown in job growth in the United States since the second half of the year.

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However, data shows that even with a cooling job market, there is no sign of large-scale layoffs.

Bob Schwartz, a senior economist at Oxford Economics, said in an interview with First Financial Daily that as gasoline prices fall, the U.S. inflation rate is gradually moving towards the 2% medium-term target.

Considering the moderate inflation outlook, the Federal Open Market Committee's top priority will be the risks in the labor market.

However, the suspense of the extent of policy shift has arisen again.

Former New York Fed Chairman Dudley said last week that there is ample reason for a 50 basis point rate cut.

There are also many comments that the Fed faces a tough decision on September 18th.

The yield on medium to long-term U.S. Treasuries has fallen, and the 2-year U.S. Treasury, which is closely related to interest rate expectations, fell 7.6 basis points to 3.58% last week, hitting a new low since September 2022, and the benchmark 10-year U.S. Treasury fell 6.1 basis points to 3.65%.

According to the FedWatch tool of the Chicago Mercantile Exchange, the probability of the Fed cutting rates by 25 basis points at this meeting has fallen from 70% to around 50%, and a 50 basis point cut has once again become a popular option.

Bryan Whalen, Chief Investment Officer of investment institution TCW Group, believes that the Fed may fall behind the situation.

Once the U.S. retail sales data for August are unexpectedly weak, the momentum for a 50 basis point rate cut will increase.

"If they only cut rates by 25 basis points, this is more favorable for the bond market, because it means that the Fed will have to take more aggressive measures in the future."

Schwartz told First Financial Daily that the weak but still stable labor market gives the Fed room to gradually lower interest rates under the condition of basically controlled inflation.

However, if the labor market becomes more weak, the Fed may be stimulated and cut interest rates more quickly.

He still tends to start with a 25 basis point rate cut, given the downside risks of the labor market, the Fed will imply that this is just the beginning of the easing cycle.

Schwartz said that the outside world will look for more signals from the Fed's policy statement, Powell's press conference, and the latest economic forecast of the Federal Open Market Committee to understand the extent of the Federal Open Market Committee's plan to lower interest rates.

Interest rate expectations boost risk appetite.

After a brief fluctuation at the beginning of the month, as the Fed's rate cut approaches, the three major U.S. stock indices are back on track, with the S&P 500 index only 1% away from the historical high.

Dow Jones market data shows that all sectors have shown a general rise.

The technology sector led the week with a 6.1% increase, followed by the communication services sector with a 4.3% increase.

Industries, raw materials, utilities, and real estate also rose by more than 3%, with only the energy sector falling nearly 0.5% due to concerns about demand prospects.

Multiple pieces of good news have made investors focus on the artificial intelligence industry again.

It is reported that the United Arab Emirates MGX is negotiating to become a part of OpenAI's billions of dollars in financing.

At the same time, Nvidia is expected to be approved to export high-end chips to Saudi Arabia, and the company's CEO Huang Renxun also revealed the strong market demand for the flagship product Blackwell at the event, and Oracle's financial report was better than expected, with strong demand for cloud infrastructure products.

Although the hope of a substantial rate cut has boosted the index of large-cap stocks, the optimistic sentiment is also reflected in small-cap stocks.

The Russell 2000 index rose 4.4% last week, as smaller companies, which are more dependent on borrowed funds and floating interest rate loans, are more sensitive to interest rate changes.

Baird believes that the stock market seems to show investors' optimistic sentiment that a 50 basis point rate cut does not mean an upcoming economic recession.

"Investors see this and say they have to speed up their actions."

However, due to weak economic data and increased political uncertainty before the U.S. election, many investors are cautious.

According to the data provided by the London Stock Exchange Group (LSEG) to First Financial Daily, investors sold a net value of $7.82 billion in U.S. stock funds in the past week, which is the fifth week of capital outflow in six weeks.

As a safe-haven option, money market funds attracted $18.17 billion in funds.

Charles Schwab said in its outlook report that market sentiment has changed due to the latest inflation data and the potential radical measures of the Fed meeting.

In addition, the chip sector has ushered in a timely technical rebound, thanks to the optimistic comments of Nvidia CEO Huang Renxun and Oracle's strong earnings report.

The institution believes that the message conveyed by the Fed and Powell in the next week will be very important, as this is the last interest rate meeting before the U.S. election.

However, whether the U.S. economy will achieve a soft landing remains uncertain.

In addition to the weakness of the labor market and manufacturing, most of the recent data seems to support a soft landing, but there is also a lag in interest rate cuts.

No matter what decision the Fed makes, investors may react with "news selling," which will be a potential source of volatility.