A rally in the world’s largest technology companies sent stocks to all-time highs, with Jerome Powell’s remarks to Congress not doing much to dissuade traders from betting on Federal Reserve rate cuts this year.
For the first time in its history, the S&P 500 topped 5,600. A renewed bid for megacaps drove the gauge toward its longest win since November, with Nvidia Corp. up 2.5% and Apple Inc. climbing on news it aims to ship 10% more new iPhones after a bumpy 2023. Treasuries remained fairly stable after a strong $39 billion sale of 10-year bonds. Swaps are pricing in two Fed cuts in 2024 — and higher chances the first comes in September.
As Wall Street geared up for the consumer-price index, Powell said the Fed doesn’t need inflation below 2% before cutting rates, while adding officials still have more work to do. He noted the labor market has cooled “pretty significantly.” Powell cited a “good ways to go” on the balance-sheet runoff, and said commercial real estate doesn’t threaten financial stability.
“The key takeaway from his testimony is the Fed’s assessment of the balance of risks is shifting in ways that – if supported and sustained by incoming data – will deliver a rate cut in September,” said Krishna Guha at Evercore.
The S&P 500 climbed for a seventh straight day, while the Nasdaq 100 added 1%. Gold and silver mining stocks rallied on Fed easing bets. Banks underperformed. Google parent Alphabet Inc. has shelved efforts to acquire HubSpot Inc., according to people with knowledge of the matter.
US 10-year yields fell two basis points to 4.28%. Bank of England Chief Economist Huw Pill said the timing of a rate cut is still an “open question,” prompting traders to pare bets on August cut. Oil rose as a US holiday boosted demand for gasoline and jet fuel.
“Markets remain remarkably calm despite the flood of data this week, including Fed Chair Powell’s testimony, CPI/PPI reports, and the beginning of earnings season,” said Mark Hackett at Nationwide.
The so-called core CPI, which excludes food and energy costs and is seen as a better measure of underlying inflation, is expected to rise 0.2% in June for a second month. That would mark the smallest back-to-back gains since August — a pace more palatable for Fed officials.
“June’s CPI report looks to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong at Bloomberg Economics. “That should set the stage for the Fed to start cutting rates in September.”
A survey conducted by 22V Research shows 55% of investors expect the market reaction Thursday’s CPI to be “risk-on,” 16% said “risk-off” and 29% “mixed/negligible.”
“There is optimism about inflation generally,” said Dennis DeBusschere at 22V, adding that the survey also showed investors think “CPI is on a Fed-friendly glide path.”
Meantime, some trading desks say investors should gear up for a potential break in the eerie calm that’s recently descended on the market.
The options market is betting the S&P 500 Index will move 0.8% in either direction after Thursday’s report on consumer prices, based on the price of that day’s at-the-money straddles, according to Stuart Kaiser, Citigroup’s head of US equity trading strategy.
If it happens, that would be the biggest move for the index since June 12, the day of the last CPI print and interest-rate decision.
Market volatility may pick up in the days and weeks ahead, amid US political uncertainty, comments from the Fed chair, and the start of the second-quarter earnings season, according to Mark Haefele at UBS Global Wealth Management.
For the first time since 2022, S&P 500 earnings may not be laser-focused on just technology, with the quarter’s success hanging on everything aside from the megacap tech heavyweights that have driven stocks to all-time highs, according to Bloomberg Intelligence strategists led by Gina Martin Adams.
“While forecasts for the ‘Magnificent Seven’ remain robust, their earnings are expected to slow in the second quarter — just as the rest of the S&P 500 may finally post their first year-on-year growth in at least five quarters,” they noted.
The Magnificent Seven may have already peaked, while the remaining S&P 500 stocks may post their first earnings expansion in at least six quarters, the strategists concluded.
Some of the main moves in markets:
Executives from LPL Financial, Cresset Partners hired for key roles.
Geopolitical tension has been managed well by the markets.
December cut is still a possiblity.
Canada, China among nations to react to president-elect's comments.
For several years, Leech allegedly favored some clients in trade allocations, at the cost of others, amounting to $600 million, according to the Department of Justice.
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This season’s market volatility: Positioning for rate relief, income growth and the AI rebound
