The stock market saw record highs on Wall Street on the backs of lower-than-expected inflation data, prompting speculation of a potential rate cut by the Federal Reserve in September. The S&P 500 and Nasdaq hit new records, with the Dow Jones Industrial Average also jumping significantly. Tech giants like Nvidia, Apple, and Microsoft experienced gains, while yields on Treasury notes decreased. In addition, oil prices declined. The consumer price index for April showed a 0.3% increase, slightly below expectations, with a 3.4% rise in inflation over the past year. This data, although still above the Fed’s 2% target, increased the likelihood of a future rate cut.
Meme stock frenzy cooled off as shares of GameStop and AMC dropped by more than 18% each after a resurgence in interest sparked by social media. GameStop and AMC had seen significant increases earlier in the week but faced predictions from analysts of a potential negative impact from a “short squeeze.” Meanwhile, Warren Buffett’s Berkshire Hathaway revealed a $6.7 billion stake in Chubb, a Zurich-based insurer, marking the first time this purchase had been disclosed after being kept secret for three straight quarters.
In Asia, markets rose following Wall Street’s record highs, with Hong Kong’s Hang Seng and Japan’s Nikkei 225 both seeing gains. Chinese tech giant Tencent also performed well after posting better-than-expected earnings. The Biden administration’s tariff increases on Chinese imports led Morgan Stanley analysts to identify U.S. stocks that could benefit from ongoing trade tensions between the U.S. and China.
The current market sentiment points towards a possible rate cut by the Federal Reserve, with a 75.3% probability indicated for the September meeting, according to the CME FedWatch Tool. Wilmington Trust’s head of investment strategy, Meghan Shue, predicts three rate cuts this year, beginning in July, based on inflation data that appears to be running below 2%. Despite these expectations, Fed Chair Jerome Powell has emphasized the need for patience, citing a slower than anticipated decline in inflation levels as a reason to maintain current rates for a longer period.
Skyler Weinand, Chief Investment Officer at Regan Capital, believes a September rate cut is possible but suggests that more evidence may be needed before the Fed makes a decision. Weinand notes that inflation is still below the Fed’s desired 2% level and that the economy remains strong. Powell also stressed the importance of patience and further evidence before any rate adjustments are made, indicating that the Fed is not currently considering cutting rates.
