Tech Companies Propel S&P 500 to Record Highs

Breaking the 5600 Point Barrier for the First Time

Driven by the surge in shares of the world’s largest tech companies,
the S&P 500 index reached unprecedented levels,
surpassing 5600 points for the first time.
Despite Federal Reserve Chairman Jerome Powell’s testimony before Congress,
traders continued to bet on interest rate cuts by the Federal Reserve this year.

Topic

Rise of Major Tech Stocks

Treasury Bonds Remain Stable

Powell’s Remarks and Interest Rate Expectations

Market details

Rise of Major Tech Stocks

Renewed optimism in giant tech companies pushed the U.S. stock index to its longest rally since November. Nvidia’s stock surged by over 2.5%, while Apple shares rose following news that it plans to increase shipments of new iPhones by 10% after a challenging 2023.

Treasury Bonds Remain Stable

Treasury bonds remained relatively stable after a strong $39 billion sale of 10-year bonds. Market swaps are pricing in two rate cuts from the Federal Reserve in 2024, with the first cut likely in September.

Powell’s Remarks and Interest Rate Expectations

Powell stated that the Federal Reserve does not need inflation to be below 2% before cutting interest rates, emphasizing that more work needs to be done. He noted that the labor market has slowed “significantly” and that commercial real estate does not pose a financial stability threat.

Market details

Towards a September Rate Cut

Krishna Guha of Evercore commented that the main takeaway from Powell’s testimony is that if supported and sustained by data, the Federal Reserve’s changing risk assessment could lead to a rate cut in September.

The S&P 500 rose by 1%, marking its seventh consecutive gain and the 37th record high this year. Shares of gold and silver mining companies climbed on bets of imminent easing by the Federal Reserve, while banks underperformed. Alphabet, Google’s parent company, halted plans to acquire HubSpot Inc., according to insiders.

Bond Yields and Oil Prices

U.S. 10-year bond yields fell by two basis points to 4.28%. Oil prices rose with increasing demand for gasoline and jet fuel due to the U.S. holiday.

Calm Markets Amid Anticipation

Mark Hackett of Nationwide noted that markets “remain remarkably calm” despite the expected data flow this week, including Powell’s testimony, the Consumer Price Index (CPI) and Producer Price Index (PPI) reports, and the start of earnings season.

The core CPI, excluding food and energy costs, is expected to rise by 0.2% in June for the second month in a row, marking the smallest consecutive increase since August. Anna Wong of Bloomberg Economics said the June CPI report is another “very good” report that would bolster the Federal Open Market Committee’s confidence in the inflation path and pave the way for a rate cut in September.

Market Reactions and Investor Sentiment

A survey by 22V Research found that 55% of investors expect the market to lean towards risk-taking in response to the CPI report, while 16% believe it will “avoid risk” and 29% expect a “mixed or weak” reaction. Dennis DeBusschere said there is general optimism about inflation among investors.

Potential Market Volatility

Some trading desks warn that investors should be prepared for a possible end to the recent strange calm in the market. Options markets are betting that the S&P 500 will move by 0.8% in either direction following Thursday’s CPI report, according to Stuart Kaiser, head of U.S. equity trading strategy at Citigroup.

If this occurs, it would be the largest move since June 12, another CPI reading day and rate decision. Market volatility may increase in the coming days and weeks due to U.S. political uncertainty, Powell’s comments, and the start of second-quarter earnings season, according to Mark Haefele of UBS Global Wealth Management.

Slowing Earnings for the “Magnificent Seven”

For the first time since 2022, S&P 500 earnings may not focus solely on tech companies. Bloomberg Intelligence strategists led by Gina Martin Adams predicted that the earnings of the “Magnificent Seven” (Meta, Apple, Nvidia, Amazon, Tesla, Alphabet, Microsoft) will slow in the second quarter, while the rest of the index may finally record its first year-on-year growth in at least five quarters.

Tech Companies Propel S&P 500 to Record Highs

Tech Companies Propel S&#038;P 500 to Record Highs

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Tech Companies Propel S&P 500 to Record Highs