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Tech Stocks Soar as Federal Reserve Rate Cuts Loom
A rally in the world’s largest technology companies propelled stocks to all-time highs. Jerome Powell's testimony before Congress did little to deter traders from anticipating Federal Reserve rate cuts this year. The S&P 500 reached over 5,600 for the first time, driven by gains in megacap stocks. Nvidia Corp. surged 2.5%, and Apple Inc. rose on news of plans to increase iPhone shipments by 10% following a challenging 2023. Treasuries remained stable after a successful $39 billion sale of 10-year bonds.
Market speculations now price in two Fed rate cuts in 2024, with expectations that the first cut could happen in September. As Wall Street braced for the consumer-price index report, Powell stated that the Fed doesn’t need inflation below 2% to start cutting rates, though he acknowledged that more work is needed. He pointed out a significant cooling in the labor market and mentioned that commercial real estate does not pose a threat to financial stability. Krishna Guha at Evercore noted that if current data trends continue, a rate cut in September is likely.
The S&P 500 marked its seventh consecutive day of gains, and the Nasdaq 100 also climbed by 1%. Precious metals like gold and silver also saw a rise due to speculation on Fed rate easing, while banks underperformed. In other corporate news, Alphabet Inc., Google’s parent company, decided not to pursue an acquisition of HubSpot Inc.
US 10-year yields decreased marginally by two basis points to 4.28%. Bank of England Chief Economist Huw Pill mentioned that the timing of a rate cut remains uncertain, leading traders to reassess the likelihood of an August cut. Oil prices increased due to heightened demand over a US holiday.
Markets displayed calm despite a week dense with data, ranging from Powell's testimony to CPI/PPI reports and the start of the earnings season. Core CPI is projected to rise by 0.2% in June, mirroring the previous month and marking the smallest consecutive gains since August—an acceptable rate for Fed officials. According to Bloomberg Economics' Anna Wong, this CPI report should solidify the Fed's confidence in the inflation trajectory, paving the way for rate cuts in September.
Investor sentiment towards the upcoming CPI data suggests optimism, with 55% of surveyed investors expecting a "risk-on" reaction. Dennis DeBusschere at 22V remarked that investors generally view CPI as trending favorably for the Fed.
Some market watchers warn of potential volatility as market calm could break with looming political uncertainties, remarks from the Fed chair, and the onset of the second-quarter earnings season. Notably, UBS’s Mark Haefele indicated that overall market volatility might increase in the coming days.
This earnings season, the S&P 500 narrative may shift focus away from technology-heavyweights for the first time since 2022. Bloomberg Intelligence suggests the second quarter might see the broader S&P 500 posting its first year-on-year growth in several quarters, while the "Magnificent Seven" tech giants could experience a slowdown.
Corporate Highlights
Microsoft Corp. evaded a potential long European Union antitrust probe by making a deal with an Amazon-backed trade group. Intuit Inc. plans to cut 1,800 jobs, aiming to enhance its focus on AI-driven products. Advanced Micro Devices Inc. will acquire Silo AI to bolster its AI capabilities with a $665 million cash deal. Archer-Daniels-Midland Co. has recruited a 3M Co. executive to manage its finances following an accounting scandal. The US Federal Trade Commission is reportedly preparing a lawsuit against leading drug middlemen over rebate practices. Honeywell International Inc. will purchase Air Products and Chemicals Inc.’s LNG process technology business for $1.81 billion.
