S&P 500 and Nasdaq close at highest since April 2022
The S&P 500 jumped to its highest level in 13 months on Monday as traders hoped the Federal Reserve will skip hiking rates when the central bank decides on policy Wednesday.
The S&P 500 added 0.93% to close at 4,338.93, with gains steadily increasing throughout the trading day. The benchmark surpassed its high from last August and reached the best intraday and closing levels since late-April 2022. The Nasdaq Composite popped 1.53% to finish the day at 13,461.92, also reaching its highest levels since April 2022. The Dow Jones Industrial Average climbed 189.55 points, or 0.56%, to close at 34,066.33.
Markets have come to expect that the Fed will skip a rate increase at this week’s meeting, with traders pricing in a roughly 72% chance that there will be no hike, according to the CME Group’s FedWatch tool. The Fed has hiked 10 consecutive times since starting this latest policy-tightening cycle in March 2022.
Tuesday’s inflation data could help reinforce the case that inflation is subsiding, as economists expect the consumer price index to show inflation dropping to a 4% annual rate in May. That’s down from 4.9% in the prior month.
The central bank will ultimately decide to skip a rate hike for June, according to Certuity co-chief investment officer Dylan Kremer, but the Fed likely isn’t done raising rates overall.
“We don’t necessarily believe that there’s no more hikes in the cards, but we do think it’s a 50/50 chance of another hike happening in this cycle,” Kremer said. “All else equal, [the CPI report] could be a short-term tailwind as markets continue to grind higher.”
However, market expectations are that Fed officials will emphasize a commitment to keep inflation at bay and come back with a final rate increase at July’s meeting before going on hold for the rest of the year.
The S&P 500 last week reached a significant milestone, gaining more than 20% off its October low. The move caused many investors to signal the bear market is over. The benchmark has been on a bit of a hot streak, gaining four weeks in a row. The Nasdaq Composite has been on an even bigger tear, up 33% from its 52-week low.
The Nasdaq and technology stocks led the way on Monday again, with Amazon and Tesla each up more than 2%.
Technology stocks connected to artificial intelligence have surged this as enthusiasm for these tools gains steam. But Needham sees five specific big technology names as the biggest winners in the race.
As the top beneficiaries given their size, scope, and financial prowess, enabling them build and maintain AI models, and harness the talent.
Among theses names, the three biggest cloud providers stand to “win most and fastest,” Martin said. She expects these brands to have lower costs and higher revenues as other companies pay steep fees to access their models.
“Also, Cloud services get much more sticky after a business builds an app on their [foundation models],” she said.
The U.S. dollar drifted from a two-month high as investors trimmed bets based on lower rate hike expectations, while the euro recovered from a two-month low after European Central Bank (ECB) President Christine Lagarde said inflation remained too high and further policy tightening was necessary.
The dollar index fell 0.586%, with the euro up 0.68% to $1.0761.
Oil prices were buoyed by optimism from the passage of the debt ceiling bill that could underpin consumer demand despite reports that U.S. crude inventories rose by about 5.2 million barrels last week.
Brent crude futures settled up 2.3% to $74.65 a barrel, their biggest daily gains since May 17. U.S. West Texas Intermediate crude (WTI) climbed 3% to settle at $70.10 a barrel, recording its biggest daily gains since May 5.
Gold gained nearly 1% to a more than one-week peak on Thursday, as the dollar tumbled. Spot gold added 0.8% to $1,978.01 an ounce, while U.S. gold futures gained 0.73% to $1,978.30 an ounce.