Next week's U.S.-China summit in Washington could decide whether Wall Street's post-Fed rally holds. The Nasdaq notched its third winning week in four even as the S&P 500 and Dow Jones fell, but strategists warn breadth is thinning and downside risks are building into the Trump-Xi meeting.
Nasdaq extends gains despite rate hike
Stocks closed a mixed week on Friday after the Federal Reserve unanimously raised interest rates for the first time since 2023. The S&P 500 and Dow Jones Industrial Average each ended the week lower, but the Nasdaq Composite posted its third winning week in four as tech stocks led the rebound after the central bank meeting.
Policymakers penciled in one more rate increase for 2026. Yet fed funds futures were pricing roughly 42% odds of two more hikes, according to the CME FedWatch Tool. Still, investors have taken the prospect of a rate hike environment in stride, reassured by economic strength and corporate earnings tied to artificial-intelligence spending.
Breadth narrows as strategists flag risk
But the path forward has grown harder to read. Bond yields remain elevated, and oil prices remain above $100 a barrel as the war in the Middle East continues, while the U.S. also faces an eventful midterm election season.
BTIG's Jonathan Krinsky noted that the share of S&P 500 stocks trading above their 200-day moving averages stood at 49%. According to CNBC: "More and more stocks are breaking support and their 200 DMAs." Elsewhere, Ed Yardeni cut his year-end S&P 500 target to 7,900 from 8,400, a forecast that still implies new highs this year but falls well short of his prior estimate.
Trump-Xi meeting raises the stakes
Next week's U.S.-China summit in Washington, DC between President Donald Trump and Chinese President Xi Jinping is expected to bring few breakthroughs on tariffs or AI. However, a sharp escalation that costs the U.S. its Chinese intermediary in the Iran war could exacerbate an energy crisis and potentially trigger a market correction, while any cooperation between the two sides could spark relief buying instead.
Goldman Sachs' Rich Privorotsky said the economic incentive for both countries to de-escalate is enormous, calling it a moment of maximum leverage for both sides. The Trump-Xi meeting is scheduled for Thursday, alongside earnings from Costco Wholesale and Darden Restaurants.
Source: CNBC
Trading involves risk.
Risk Disclaimer
