Good morning Traders and Quants! After a string of record closes, markets finally took a breather Tuesday. The S&P 500, Nasdaq, and Dow opened at highs but faded into the red as profit-taking hit tech. NVIDIA led the retreat, with enthusiasm fading after its $100 billion OpenAI pledge, while Amazon and other large caps also slipped. Energy bucked the trend, rallying as oil moved higher on renewed NATO–Russia tensions.

Powell’s comments added to the cautious tone. Speaking in Rhode Island, he warned that equity valuations look “fairly high” and reiterated there is “no risk-free path” for policy. Bond markets responded with modest demand, pushing the 10-year down to 4.11%. Futures this morning are pointing slightly higher as investors weigh Powell’s words against upbeat earnings from Micron and Alibaba’s $53 billion AI investment pledge.

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Futures are pointing higher this morning as investors debate whether Tuesday’s selloff was just a healthy pause in an extended rally. Markets had sprinted to highs with AI and energy driving flows, and Tuesday’s pullback looked like a pause. The narrative remains narrow: only 17% of S&P 500 names have outperformed the index over the past three months, underscoring how much leadership rests with mega-cap tech.

The dollar is firmer after Powell’s comments reinforced caution over further easing, while bond yields remain steady with the 10-year near 4.10%. Traders are watching housing data later today and Friday’s PCE inflation report for confirmation of the Fed’s next move. 

Gold’s run briefly stalled, slipping back below $3,810 as traders booked profits after Tuesday’s record. Oil continued its climb, supported by Trump’s call at the UN for Europe to cut Russian imports and his remark that NATO allies should shoot down Russian aircraft in their airspace. Those comments rattled geopolitics and fueled further rotation into defense and energy names, with Halliburton surging more than 7%.

The Fed is trying to hold the middle ground. Powell avoided signaling October’s move, balancing labor softness against sticky services inflation. Miran, meanwhile, is pushing for rates as low as 2.5%, citing Trump-era supply-side reforms, though critics note his assumptions ignore side effects like wage inflation from tighter immigration. Investors continue to price in two more cuts this year, with Friday’s PCE inflation report the key test.

Overseas, the dollar edged higher against the yen and pound after Powell’s remarks, with traders still expecting cuts but paring back ultra-dovish bets. The RBA faces pressure as Australian CPI rose slightly in August, complicating easing expectations. In Europe, German business sentiment slipped again, and the ECB is juggling weak growth with energy shock risks.

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Trump’s UN speech marked his sharpest turn yet on Ukraine, declaring Kyiv can “win back all lost territory.” He urged NATO allies to intercept Russian aircraft in alliance airspace and promised to continue arming Europe. Zelensky hailed the comments as “game changing,” though the shift risks deepening the standoff with Moscow.

At the same time, China is maneuvering to expand its role in global gold trading, aiming to claim a bigger share of settlement flows and challenge the dollar’s dominance in commodities. This comes as Beijing continues to flood export markets to counter Trump’s tariffs, reinforcing the sense of parallel economic blocs forming.

The shutdown clock is ticking with just six days until funding runs out. A House GOP stopgap bill failed in the Senate, and Trump canceled a planned meeting with Democratic leaders. Odds of a partial closure on October 1 are climbing. While shutdowns historically don’t alter long-term market direction, they do interrupt paychecks and services, injecting near-term uncertainty into consumption.

Meanwhile, political noise is spilling into markets. Vaccine guidance updates and cultural flashpoints like Jimmy Kimmel’s return to late-night are feeding into the broader clash over free speech and public health policy. Each headline adds to a Washington backdrop where brinkmanship is the norm heading into year-end.

Tuesday’s retreat was a reminder that rallies need pauses. Powell’s caution on valuations and the looming shutdown headline risk add complexity, but momentum flows into AI and energy remain powerful. With PCE data on Friday, the Fed’s balancing act is front and center. Abroad, Trump’s shift on Ukraine and China’s gold ambitions show geopolitics are tightening their grip on markets.

For traders, the playbook hasn’t changed: momentum is intact, but the noise is getting louder.