Some dovish remarks by Federal Reserve Chair Jerome Powell before Congress gave equities a big boost Wednesday. Mega-cap tech stocks, as per usual, led the charge, with tomorrow's key reading on consumer price inflation representing their next hurdle.
Appearing before a House committee, Powell on Wednesday reiterated the Fed's data-dependent path toward interest-rate policy. Equity markets perked up, however, when the central banker suggested the Fed has become more concerned about a slowing economy and softer labor market.
"Powell noted that disinflation has returned after price pressures gained in the latter part of 2023," writes José Torres, senior economist at Interactive Brokers. "He opined that the most likely path for the Fed is to ease, but he refrained from speculating on when the organization will make its initial move. He added that recent data show that the job market is softening, and much like before the pandemic, the economy is no longer overheated."
Powell's presumed dovishness was just what markets wanted to hear. After all, they're desperate for the Federal Open Market Committee (FOMC) to enact its first quarter-point cut to the short-term federal funds rate. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing labor market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.
Indeed, as of July 10, futures traders assigned a 70% chance the FOMC will start easing at its September meeting, up from 45% a month ago, according to CME Group's FedWatch Tool.
Against that backdrop, the next CPI report, released ahead of Thursday's open, will be dissected closely for clues as to when the first rate cut might land.
"Tomorrow's Consumer Price Index (CPI) will likely offer the second report of the year when price pressures arrive in the Fed's 2% ballpark on an annualized, month-over-month (m/m) basis," writes Interactive Brokers' Torres. "Inflation reports from January to April weren't cooperative."
Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis.
S&P 500 powers past 5,600
By the closing bell, two of the three main benchmarks set record closing highs – and one of them even set a milestone – thanks to mega-cap tech stocks.
The broader S&P 500 added more than 1% to close at 5,663, topping the 5,600 level for the first time ever. The tech-heavy Nasdaq Composite gained 1.2% to finish at its own record of 18,647. The blue-chip Dow Jones Industrial Average rose 1.1% to end at 39,721.
Once again, Nvidia (NVDA, +2.7%) and Apple (AAPL, +1.9) led the market's charge. With their massive market caps, NVDA and AAPL – at 6.7% and 7.01% of the S&P 500, respectively – are two of the three most heavily weighted stocks in the benchmark index. Microsoft (MSFT, +1.5%) is No 1 in the S&P 500 with a 7.4% weight.
Nvidia stock alone added $87 billion in market value Wednesday, or more than the entire market cap of Starbucks (SBUX). Apple shareholders saw their wealth expand by $65 billion.
Nvidia has been the market's favorite pure-play bet on all things AI, but NFLX has been generating outsized returns for ages. Anyone who put $1,000 into Nvidia stock 20 years ago would be very pleased with their returns today.
And as for the iPhone maker? Apple's 20-year returns are incomparable to any other stock.
