The S&P 500 Index ($SPX) (SPY) on Friday closed down -0.05%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.59%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +0.42%.  September E-mini S&P futures (ESU25) fell -0.06%, and September E-mini Nasdaq futures (NQU25) rose +0.41%. 

Stock indexes settled mixed on Friday, as higher bond yields sparked long liquidation in equities.  The 10-year T-note yield rose +5 bp to 4.06%.  Also, the larger-than-expected decline in the University of Michigan US Sep consumer sentiment index to a 4-month low weighed on stock prices. 

Stocks initially moved higher on Friday, with the S&P 500 and Nasdaq 100 posting new all-time highs.  Friday’s weaker-than-expected report on US consumer sentiment for September added to this week’s Fed-friendly news that has bolstered the outlook for Fed interest rate cuts and supported this week’s rally in the major stock indexes to new record highs. 

Most major US benchmark indexes, including the S&P 500, the Dow Jones Industrials, and the Nasdaq 100, posted record highs this week, driven by expectations of Fed interest rate cuts.  Stocks rallied to new all-time highs this week as weak labor market news and relatively contained inflation reports bolstered expectations for at least a 25 bp rate cut by the Fed at next week’s FOMC meeting and a total of 75 bp of rate cuts by year’s end. 

In a negative factor for the US economy, today’s University of Michigan US Sep consumer sentiment index fell -2.8 to a 4-month low of 55.4, weaker than expectations of 58.0.

The University of Michigan Sep 1-year inflation expectations were unchanged from Aug at +4.8%, right on expectations.  However, Sep 5-10 year inflation expectations unexpectedly increased to +3.9% from +3.5% in Aug, higher than expectations of a decline to +3.4%.

The markets are pricing in a 100% chance of a -25 bp rate cut and an 8% chance of a -50 bp rate cut at the upcoming FOMC meeting on September 16-17.  After the fully expected -25 bp rate cut at the Sep 16-17 meeting, the markets are discounting a 91% chance of a second -25 bp rate cut at the Oct 28-29 meeting.  The markets are pricing in an overall -70 bp rate cut in the federal funds rate by year-end to 3.63% from the current 4.33% rate.

Overseas stock markets on Friday settled mixed.  The Euro Stoxx 50 closed up +0.07%.  China’s Shanghai Composite fell from a 10-year high and closed down -0.12%.  Japan’s Nikkei Stock 225 rallied to a new all-time high and closed up +0.89%.

Interest Rates

December 10-year T-notes (ZNZ5) on Friday closed down -12 ticks.  The 10-year T-note yield rose by +3.4 bp to 4.055%.  T-notes slid on Friday on profit-taking and long liquidation following this week’s rally to 5-month highs.  Also, the University of Michigan’s September 5-10 year inflation expectations unexpectedly increased to +3.9% from +3.5% in August.  Finally, Friday’s rally in WTI crude oil raised inflation expectations and is negative for T-notes.

This week’s Fed-friendly US economic news on labor markets and inflation cemented expectations for at least a 25 bp rate cut at next week’s FOMC meeting.  Also, today’s US consumer sentiment report was weaker than expected.  The markets are now pricing in an overall -70 bp rate cut in the federal funds rate by year-end to 3.63% from the current 4.33% rate.

Concerns about Fed independence are negatively impacting T-note prices due to President Trump’s attempt to fire Fed Governor Cook and Stephen Miran’s intention to hold a Fed Governor position while remaining technically in his White House role on the Council of Economic Advisors.

European government bond yields moved higher on Friday.  The 10-year German bund yield rose +5.9 bp to 2.715%. The 10-year UK gilt yield rose +6.5 bp to 4.671%.

ECB Governing Council member and Bundesbank President Nagel said, “The present interest rates are appropriate if inflation develops as projected. So, unless there’s any other significant development, there’s no need to take action soon.” He added that lowering borrowing costs further could endanger the ECB’s aim of stabilizing inflation at 2% over the medium term.

ECB Governing Council member Villeroy de Galhau said, “Nothing is pre-determined in advance, but it is absolutely possible there is another rate cut at the coming ECB meetings, as several of us, including myself, underlined the downward risks to inflation in the near future.”

UK July manufacturing production unexpectedly fell -1.3% m/m versus expectations of +0.1% m/m and the biggest decline in a year.

Swaps are discounting a 3% chance for a -25 bp rate cut by the ECB at the October 30 policy meeting.

US Stock Movers

Warner Bros Discovery (WBD) closed up more than +16%, adding to Thursday’s +28% surge and leading gainers in the S&P 500 and Nasdaq 100, on reports that Paramount Skydance is preparing a bid to acquire the company.

Tesla (TSLA) closed up more than +7% after Nevada’s Department of Motor Vehicles approved the testing of Tesla’s autonomous vehicles in the state.

Micron Technology (MU) closed up more than +4%, adding to this week’s +13% rally on speculation that the company’s growth potential will accelerate due to strong demand for its AI chips.

Super Micro Computer (SMCI) closed up more than +2% after announcing that it is delivering high-volume Nvidia HGX B300 systems and Nvidia GB300 NVL72 in volume to customers worldwide. 

Gartner Inc. (IT) closed up more than +2% after announcing that it will add up to an additional $1.0 billion to its stock buyback program. 

Microsoft (MSFT) closed up more than +1% to lead gainers in the Dow Jones Industrials after reaching a preliminary agreement with OpenAI about the structure of their partnership, which could pave the way for Microsoft to incorporate OpenAI’s AI tools into its products.

AppLovin (APP) closed up more than +1% after Wedbush raised its price target on the stock to $725 from $620, citing its “vast” growth potential. 

Covid vaccine makers retreated Friday after the Washington Post reported that US officials plan to link 25 child deaths to Covid shots.  Moderna (MRNA) and BioNTech SE (BNTX) closed down more than -7%, and Pfizer (PFE) closed down more than -3%.

Today’s jump in T-note yields is weighing on home builders and home builder suppliers.  Builders FirstSource (BLDR) and Toll Brothers (TOL) closed down more than -2%.  Also, Lennar (LEN), DR Horton (DHI), PulteGroup (PHM) closed down more than -1%. 

Oracle (ORCL) closed down more than -5%, adding to Thursday’s -6% decline, on reports that the Ellison family backs the offer by Paramount Skydance to purchase Warner Bros Discovery. Larry Ellison is chairman and co-founder of Oracle. 

Lululemon Athletica (LULU) closed down more than -3% to lead losers in the Nasdaq 100 after Bank of America Global Research cut its price target on the stock to $185 from $210.

MGM Resorts International (MGM) closed down more than -2% on signs of insider selling after an SEC filing showed Director Meister sold $8.57 million of shares on Thursday.

Molson Coors Beverage (TAP) closed down more than -1% after Barclays downgraded the stock to underweight from equal weight. 

Applied Materials (AMAT) closed down more than -1% after Mizuho Securities downgraded the stock to neutral from outperform and cut its price target to $175 from $200. 

Earnings Reports(9/15/2025)

Dave & Buster’s Entertainment (PLAY), Hain Celestial Group Inc/The (HAIN), Lionsgate Studios Corp (LION), Radiant Logistics Inc (RLGT).