Smart Finance noticed that the stock prices of global technology giants like Apple (AAPL.US), Microsoft (MSFT.US) and Nvidia (NVDA.US) collectively rose, pushing the US stock market to a historical high; meanwhile, Federal Reserve Chairman Powell's speech to Congress did not stop traders from betting on the Fed's interest rate cut this year.
The market's funds continue to show a frenzy of 'Risk On', driving the S&P 500 index to its first-ever breakthrough of 5600 points. The new round of bidding for large tech stocks and Powell's relatively dovish comments pushed the US stock market to its longest rally since November last year. Nvidia (NVDA.US) rose by more than 2.5%, while Apple's stock price continued to rise. The company plans to increase the shipment volume of its new iPhone by 10% after experiencing a bumpy ride in 2023. After the strong sale of $39 billion in 10-year U.S. Treasury bonds, the U.S. bond market remained relatively stable. Swap trading expects the Fed to cut interest rates twice in 2024, with a higher likelihood of the first cut in September.
As Wall Street prepares for the CPI, Powell said the Fed does not need inflation to be below 2% to cut interest rates, and officials have more work to do. He pointed out that the labor market has "cooled considerably." Powell said there is still a "long way to go" in shrinking the balance sheet and that commercial real estate does not threaten financial stability.
Krishna Guha of Evercore said:"The key to his testimony is that the Fed's assessment of risk balance is changing. If supported and maintained by future data, the Fed is likely to cut interest rates in September."
The S&P 500 index rose by 1%, up for the seventh consecutive day, reaching a new high for the 37th time this year. The gold and silver mining sectors rose due to expectations of the Fed's monetary policy easing. Bank stocks performed poorly. According to sources, Google parent company Alphabet (GOOGL.US) has shelved plans to acquire HubSpot Inc.
The yield on 10-year U.S. Treasuries fell 2 basis points to 4.28%. Huw Pill, chief economist of the Bank of England, said the timing of the rate cut is still a "pending issue," prompting traders to cut their bets on a rate cut in August. Oil prices rose as the U.S. holiday season boosted demand for gasoline and aviation fuel.
Mark Hackett of Nationwide said:"Despite a lot of data this week, including Powell's testimony, CPI/PPI reports, and the beginning of earnings season, the market is still unusually calm."
The so-called core CPI, which does not include food and energy costs, is considered a better indicator of potential inflation and is expected to rise 0.2% for the second consecutive month in June. This will be the smallest increase since August and more acceptable to Fed officials.
"The June CPI report looks like another 'very good' report, which should increase the FOMC's confidence in the inflation trajectory," said economist Anna Wong. "This should lay the foundation for the Fed to begin cutting interest rates in September."
A survey by 22V Research shows that 55% of investors expect a 'Risk On' response to Thursday's CPI, while 16% expect a 'Risk Off' response and 29% expect a 'mixed/insignificant' response.
Dennis DeBusschere of 22V said:"The market is generally optimistic about inflation," adding that the survey also showed investors think "CPI is on a favorable downtrend for the Fed (to cut interest rates)."
Meanwhile, some trading desks say investors should be prepared for recent market calmness.
Citigroup's Stuart Kaiser, head of U.S. stock trading strategy, said the options market was betting that the S&P 500 would move in one direction by 0.8% after Thursday's consumer price report, depending on the day's at-the-money straddle price.
Mark Haefele of UBS Global Wealth Management said market volatility could intensify in the coming days and weeks due to US political uncertainty, comments from Fed Chairman Powell and the start of Q2 earnings season.
Industry research strategists led by Gina Martin Adams said that for the first time since 2022, S&P 500 component companies' revenue is likely not solely concentrated in technology, and this quarter's success depends on all factors beyond large tech giants driving the stock market to historical highs.
They pointed out that although the forecast for technology stocks, the "big seven sisters," remains strong, their profits are expected to slow down in the second quarter—meanwhile, other component stocks in the S&P 500 Index may ultimately achieve their first year-on-year growth in at least five quarters.
The strategists concluded that the "big seven sisters" may have reached their peak, while other component stocks of the S&P 500 Index may achieve profit expansion for the first time in at least six quarters.