(Bloomberg) — A rally by the world’s biggest technology companies sent stocks to record highs, with Jerome Powell’s comments before Congress doing little to deter traders from betting on Federal Reserve rate cuts this year.
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For the first time in its history, the S&P 500 topped 5,600 points. A renewed mega-cap bid lifted the US stock benchmark to its longest rally since November, with Nvidia Corp. rose more than 2.5% and Apple Inc. rose on news that it plans to sell 10% more new iPhones after a bumpy 2023. Treasury bonds were fairly steady after strong selling of $39 billion in 10-year bonds. Swaps factor in two Fed cuts in 2024 – and the first is more likely to come in September.
As Wall Street prepared for the consumer price index, Powell said the Fed doesn’t need inflation below 2% before cutting rates, saying officials still have more work to do. He noted that the labor market has cooled “quite significantly.” Powell called a “good way to go” on the balance sheet reduction, saying commercial real estate does not threaten financial stability.
“The key takeaway from his testimony is that the Fed’s assessment of the balance of risk is shifting in a way that – if supported and supported by incoming data – will deliver a rate cut in September,” Evercore’s Krishna Guha said.
The S&P 500 climbed 1% – for the seventh day in a row – for its 37th record this year. Gold and silver mining stocks rose on the Fed’s easing efforts. Banks underperformed. According to people with knowledge of the matter, Google parent company Alphabet Inc. the efforts to bring HubSpot Inc. to take over suspended.
The US ten-year yield fell by two basis points to 4.28%. Huw Pill, chief economist at the Bank of England, said the timing of a rate cut was still an “open question”, prompting traders to cut their bets on the August rate cut. Oil rose as a U.S. 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 start of earnings season,” said Nationwide’s Mark Hackett.
The so-called core CPI, which excludes food and energy costs and is seen as a better gauge of underlying inflation, is expected to rise 0.2% for a second month in June. That would mark the smallest consecutive gains since August — a pace more palatable to Fed officials.
“The June CPI report appears to be another ‘very good’ report that should boost the FOMC’s confidence about the inflation trajectory,” said Anna Wong of Bloomberg Economics. “That should clear the way for the Fed to start cutting rates in September.”
A survey conducted by 22V Research shows that 55% of investors expect Thursday’s market reaction to be ‘risk-on’, 16% say ‘risk-off’ and 29% ‘mixed/negligible’.
“There is general optimism about inflation,” said Dennis DeBusschere at 22V, adding that the survey also found that investors think “the CPI is on a Fed-friendly glide path.”
Meanwhile, some trading desks say investors should prepare for a possible break in the eerie calm that has recently descended on the market.
The options market is betting that the S&P 500 Index will move 0.8% in either direction after Thursday’s consumer prices report, based on the price of that day’s at-the-money straddles, said Stuart Kaiser, head of the Citigroup US stock trading strategy.
If that happens, it would be the biggest move for the index since June 12, the day of the last CPI print and interest rate decision.
Market volatility could increase in the coming days and weeks, due to political uncertainty in the US, comments from the Fed chairman and the start of the second quarter earnings season, according to Mark Haefele of UBS Global Wealth Management.
For the first time since 2022, gains in the S&P 500 may not be purely tech-driven, with the quarter’s success hinging on everything aside from the mega-cap tech heavyweights that have driven stocks to record highs, Bloomberg Intelligence strategists say led by Gina Martin Adams.
“While forecasts for the ‘Magnificent Seven’ remain robust, their gains are expected to slow in the second quarter – just as the rest of the S&P 500 may finally post their first year-over-year growth in at least five quarters, ” they say. noted.
The Magnificent Seven may have already peaked, while the remaining S&P 500 stocks could post their first earnings gain in at least six quarters, the strategists concluded.
Business highlights:
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Microsoft Corp. has avoided the threat of a lengthy European Union antitrust investigation into its cloud business after striking a deal with an Amazon.com Inc.-owned company. backed trade lobby that had complained about its software licensing agreements.
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Intuit Inc. is laying off 1,800 employees and replacing underperformers and executives with new hires intended to sharpen the company’s focus on products that use artificial intelligence.
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Advanced Micro Devices Inc. agreed to buy Silo AI for $665 million in cash, adding a maker of artificial intelligence models that will help the company close the gap with Nvidia Corp. to close.
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Archer Daniels Midland Co. – working to put an accounting scandal behind him – hired an executive from 3M Co. to oversee finances and help restore credibility with shareholders.
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The U.S. Federal Trade Commission is preparing a lawsuit against the three largest drug brokers over their use of discounts on insulin and other drugs, according to a person familiar with the investigation.
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Honeywell International Inc. agreed to acquire the liquefied natural gas process technology and equipment business of Air Products and Chemicals Inc. for $1.81 billion in cash.
Main events this week:
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US CPI, initial unemployment claims, Thursday
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Raphael Bostic and Alberto Musalem of the Fed will speak on Thursday
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Chinese trade, Friday
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University of Michigan Consumer Confidence, American PPI, Friday
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Citigroup, JPMorgan and Wells Fargo’s earnings, Friday
Some of the major moves in the markets:
Shares
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The S&P 500 rose 1% as of 4 p.m. New York time
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The Nasdaq 100 rose 1.1%
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The Dow Jones Industrial Average rose 1.1%
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The MSCI World Index rose 1%
Currencies
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The Bloomberg Dollar Spot Index fell 0.1%
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The euro rose 0.1% to $1.0829
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The British pound rose 0.5% to $1.2846
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The Japanese yen fell 0.3% to 161.74 per dollar
Cryptocurrencies
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Bitcoin fell 0.9% to $57,424.76
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Ether rose 1.2% to $3,108.05
Bonds
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The yield on ten-year government bonds fell by two basis points to 4.28%
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The German ten-year yield fell by five basis points to 2.53%
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The British ten-year yield fell by three basis points to 4.13%
Raw materials
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West Texas Intermediate crude rose 1.2% to $82.40 a barrel
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Spot gold rose 0.3% to $2,372.14 an ounce
This story was produced with the help of Bloomberg Automation.
–With assistance from Cecile Gutscher, Richard Henderson, Joel Leon and Jessica Menton.
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