The stock market rally hit fresh record highs on the Nasdaq and S&P 500 amid tame inflation reports and positive news for a variety of megacaps. However, the Dow Jones and other key indexes struggled around their 50-day lines. The CPI and PPI inflation reports came in below expectations, softening the blow as the Federal Reserve now sees just one rate cut in 2024. Apple surged to a record high as it laid out its long-awaited AI strategy. Oracle and Broadcom jumped after earnings, while Tesla leapt as shareholders approved Elon Musk's huge pay deal. Eli Lilly kept rising an FDA panel back its Alzheimer's drug.
Nasdaq, S&P 500 Hit Highs In Mixed Market
Tame inflation reports provided a positive market backdrop, even as the Fed scaled back rate cut forecasts. The Nasdaq boomed in the latest week, starting to look extended. The S&P 500 had solid gains as well to new highs. Apple, Oracle and Broadcom soared on news, while Nvidia continued to run. But the Dow Jones fell modestly amid ongoing weak-to-lackluster breadth. Treasury yields tumbled to two-month lows. Crude oil bounced.
Fed Raises Bar On Rate Cuts
The new quarterly projections showed just one quarter-point rate cut this year, down from three in March. Economists had been anticipating that the median of individual policymaker forecasts would signal two rate cuts. Fed Chair Jerome Powell said higher inflation forecasts was the key reason for the shift, but noted that more good inflation news like the May CPI could lower inflation forecasts. Powell noted that the first rate cut will trigger "a significant loosening in financial market conditions," giving the economy a new boost. Before that happens, Powell wants to be sure the economy needs lower rates. Surging stocks raise the bar for cuts.
Inflation, Economic Data Soothe
The overall CPI was unchanged from April, amid lower energy prices. The core CPI rose just 0.16%, the smallest increase since August 2021. Goods prices were flat as new vehicle prices fell 0.5%, the most in four years. Core services prices rose just 0.2%, the least since September 2021. The producer price index fell 0.2% on the month, while core PPI was flat, both well below views. Meanwhile, new jobless claims rose 13,000 to 242,000 in the week through June 8. That lifted the four-week average by 4,750 to 227,000, the highest since September.
So despite the hawkish Fed shift, markets raised the odds of a Sept. 18 rate cut as well as chances for two cuts in 2024,
Apple Stock Gets AI Boost
Apple surged to a record high after revealing its strategy for artificial intelligence, which it branded Apple Intelligence. The consumer electronics maker plans to add on-device AI capabilities to the iPhone, iPad and Mac computers. It will use its own AI models as well as third-party models, starting with OpenAI's ChatGPT. Apple's AI services will be available starting this fall, but only for the current iPhone 15 Pro model handsets and Macs and iPads with the M1 processor or newer chips. AI also will be embedded in the upcoming iPhone 16 handsets and other new hardware. The centerpiece of Apple's AI strategy is a revamped Siri digital assistant, which responds to voice and text prompts. Siri will be able to work across apps and retrieve information from messages, emails, calendar, photos and other apps. Apple's AI strategy will emphasize data privacy and security.
Broadcom Rockets On Q2 Beat
Broadcom beat fiscal Q2 views and raised full-year sales guidance. Q2 EPS grew 6% while revenue jumped 43% to $12.49 billion on its VMware takeover. Demand for custom AI chips and VMware software led the way. The chipmaker and infrastructure software provider also announced a 10-for-1 stock split. Shares shot to an all-time high.
Oracle Booms On AI Deals
Oracle stock broke out with a 13% gain following fiscal Q4 earnings Tuesday. Results for the May quarter actually came in lighter than expected. Adjusted earnings were down 1% year-over-year at $1.63 per share, while revenue was up 3% at $14.3 billion. But the earnings and sales miss was overshadowed by a bullish outlook from the database software company. Chief Executive Safra Katz said Oracle expects double-digit sales growth for fiscal 2025, driven by "enormous demand for training AI large language models in the Oracle Cloud." Oracle also announced a deal to provide cloud capacity for OpenAI to train its large language models, expanding an existing cloud partnership with Microsoft. Further, Oracle is partnering with Google to provide Oracle's database software on Google Cloud. Oracle stock is ahead 32% this year.
Adobe Surges On Upbeat Report
Adobe topped estimates for its fiscal second quarter, with EPS up 15% as sales grew 10% to $5.31 billion. The digital media and marketing software firm cited strong growth across its Creative Cloud, Document Cloud and Experience Cloud. Adobe raised its full-year guidance, forecasting a 13% EPS gain with revenue up 11% to $21.45 billion. The news sent Adobe stock surging.
FDA Panel Backs Eli Lilly Alzheimer's Drug
An FDA advisory panel voted unanimously in support of Eli Lilly's experimental Alzheimer's treatment, donanemab. All 11 panelists said evidence from the clinical trials supports the effectiveness of donanemab for early Alzheimer's treatment and that those outweigh the risks. Now the decision heads to the full FDA. Eli Lilly stock rose for an eighth straight week to a new high.
Tesla Shareholders OK Elon Musk Pay Deal
Tesla announced during its annual meeting Thursday that shareholders voted in favor of reinstating CEO Elon Musk's 2018 $56 billion pay package as well as reincorporating the EV giant in Texas, moving it from Delaware. There had speculation Musk could leave the EV giant or shift efforts to his other companies without the compensation, currently valued at around $45 billion. A Delaware court earlier this year struck down the pay deal as excessive along with Musk's "extensive ties" with Tesla's board. The court could strike down the pay vote again. Musk at the meeting Thursday touted Tesla's self-driving efforts, its Optimus robot and teased potential new EVs, but gave few specifics. Tesla stock rose modestly.
General Motors Jumps On Buyback, EV Shift
General Motors broke out of a base, hitting a two-year highs. GM announced a $6 billion buyback, which will kick in after the last $1.1 billion of a prior authorization wraps up soon. GM now expects to make 200,000-250,000 electric vehicles in 2024, showing growth from 2023 but down 10% at the midpoint from a previous target of 200,000-300,000. It was once expecting to build 400,000 EVs by middle of 2024. But that means GM will have a higher mix of its profitable internal combustion engine lineup.
EU Hikes Tariffs On China EVs
The European Union provisionally will impose additional tariffs of up to 38.1% on Chinese EVs starting in July. That's on top of the current 10% duties. European Commission "provisionally concluded that the battery electric vehicles value chain in China benefits from unfair subsidization. The tariffs will hit Chinese EV makers such as BYD, Nio and XPeng, but also foreign automakers than exports from China, including Volkswagen and Tesla. BYD, which plans to build an EV plant in Hungary, faces a relatively modest 17.4% extra tariff on its BEVs. Notably, the new tariffs appear to exclude plug-in hybrids, which is also good news for BYD.
