Wall Street Bullish as Interest Rate Cuts Anticipated Amid Political Pressure
Stock Market Continues Climbing Upwards
Things are looking up on Wall Street as investors, seemingly ignoring geopolitical tensions, are snapping up stocks, pushing US indices higher. After a tentative start, buying power took control, leading to an uptrend on three out of the last four trading days. The Dow Jones Index soared by 0.9%, reaching 43,387 points, while the S&P-500 and Nasdaq indices improved by up to 1.0%. Despite the fact that the Nasdaq Composite and the S&P-500 Index are still barely below their all-time highs, the Nasdaq-100 Index has already set a record. According to preliminary records, there were 2,203 gainers and 568 losers on the NYSE, with 53 stocks remaining unchanged.
While the commotion in the Middle East seems to have subsided, market participants have shifted their focus to areas like monetary policy and interest rate predictions. Lately, discussions have arisen suggesting that interest rates could be decreased as early as the next monetary policy meeting in July. The probability of this at the futures market is currently slightly over 20%, as compared to around 13% a week ago.
Trump Thrown into a Tussle Over Interest Rates
US President Donald Trump's demands for lower interest rates aren't new, but now he appears to be amplifying the pressure by expediting the appointment of the Federal Reserve chair Jerome Powell's successor. During Powell's remaining eleven months in office, this potential successor could influence expectations regarding monetary policy with appropriate remarks.
A series of revised or newly released economic indicators have displayed strength. Orders for durable goods in the US grew strongly in May and surpassed expectations. The number of weekly initial jobless claims fell more than anticipated. However, the downward revision of US GDP in the first quarter to 0.5% from 0.2% in the third estimate must be noted.
Euro Breaches the 1.17 Mark as Dollar Weakens
Weak interest rate cut speculations and concerns about the Fed's autonomy keep the dollar in check. The euro surged past the 1.17 marker, trading at 1.1701 dollars. The Dollar Index dropped by 0.4%. US Treasury yields fell once more, with the 10-year yield sliding 3 basis points to 4.26%.
Oil Prices Climb Amid Lower Inventories, but Struggle to Hold Gains
Oil prices were supported by the notably lower weekly US oil inventories reported the day before, but they failed to maintain their daily highs. US oil, represented by the WTI variety, rose by 0.7%. Gold showed no significant movement.
Micron Shares Drop Despite Strong Q3 Results and Positive Outlook
Micron significantly outperformed expectations with its third-quarter results and forecast for the current quarter, but its stock still fell by 1.0%. Analysts attribute this response to previously high expectations. Micron has gained around 50% since the beginning of the year.
Nvidia Continues to Climb, surpassing Microsoft as the Most Valuable Company
Nvidia, which hit a new all-time high on Wednesday, continued its upward trajectory by 0.5%. With a market cap of approximately $3.8 trillion, Nvidia has surpassed Microsoft as the most valuable company. Apple trailed behind with a 0.3% decline after JP Morgan slashed its price target, although it remains well above the current level. Meta Platforms gained 2.5% on the day. In its bid to advance its AI activities, Meta CEO Zuckerberg has recruited three top experts from OpenAI.
Tesla Tumbles as Key Ally Parts Ways with CEO Elon Musk
Tesla fell by 0.6% following reports that it has ended its partnership with a key ally of CEO Elon Musk, Omead Afshar, who was responsible for sales and production in North America and Europe.
H.B. Fuller Skyrockets on Improved Full-Year Outlook
H.B. Fuller surged by 10.8% after raising its full-year outlook following robust quarterly results. Kratos Defense & Security Solutions suffered due to plans for a capital increase, with its stock falling by 2.4%. Worthington Steel reported increased profits despite declining revenues, driving its stock up by over 20%. In contrast, investment bank Jefferies reported slower quarterly revenues and profits, missing expectations, but its stock rose by 0.3%. Walgreens Boots Alliance improved by 0.6% after reporting increased sales in the reporting quarter.
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Insights
- The Fed is expected to make two interest rate cuts by the end of 2025, signaling a more accommodative stance in response to the slowing economy and other headwinds.
- Inflation expectations have been revised upward, with core PCE inflation predicted to reach 3.0% by the end of 2025, higher than the prior 2.6% forecast.
- While the Fed controls short-term interest rates, longer-term rates like the 10-year Treasury yield fluctuate with market forces. Recession risks and inflation concerns continue to impact these rates' movements.
- The Fed has maintained its independence and a cautious stance, not yielding to external political pressure for aggressive rate hikes or changes.
The community is closely watching the potential changes in monetary policy, as the employment policy and finance sectors could be significantly affected by any interest rate cuts. Some businesses, such as those involved in stock-market investing or technology companies like Nvidia, might experience growth as a result of lower interest rates. On the other hand, changes in monetary policy could impact the value of the dollar, affecting the employment policy of companies that deal heavily in international trade.
