US stocks were poised to resume their record-setting climb on Tuesday, as investors assessed concerns about a pullback while Federal Reserve chair Jerome Powell kicked off his semiannual update to Congress.
The S&P 500 (^GSPC) edged up about 0.1% after the index booked its 35th record close of the year on Monday, while the tech-heavy Nasdaq Composite (^IXIC) led the way higher with a roughly 0.3% gain following its own record close the day prior. The Dow Jones Industrial Average (^DJI) remained the only major index in the red, falling about 0.4%, or more than 150 points.
Stocks have achieved fresh all-time highs as signs of a US economic slowdown bolster bets on interest-rate cuts.
Powell shed light on the Fed’s picture of the economy, commencing his twice-yearly policy update to Congress on Tuesday with an appearance in the Senate. In prepared remarks, the central bank leader said he’s encouraged by evidence of cooler inflation, but that the Fed still needs more “good data” to be confident that inflation is moving towards its 2% target.
Powell will appear before the House on Wednesday, setting the stage for a key update on consumer inflation on Thursday — all potential catalysts for stocks if they confirm a cooling.
But a note of caution is seeping into the market as the idea of a summer pullback gets more backers, with Morgan Stanley strategist Mike Wilson calling for a 10% correction.
Wall Street is getting cold feet about this coming earnings season, given the higher bar of expectations they face this time around. At the same time, investors are starting to question the huge inflows into AI-linked stocks that have driven the recent rally, given the tech’s impact is still unproven.
On the corporate front, BP’s (BP) US-listed shares fell about 5% in early trading after the energy giant warned of a refining slump and factory-linked writedown of up to $2 billion. Meanwhile, Novo Nordisk (NVO) stock slipped after Wegovy lost out to Eli Lilly’s (LLY) Mounjaro in an analysis of rival weight-loss drugs.
Powell: Fed needs more ‘good data’ in order to cut rates
Federal Reserve Chair Jerome Powell kicked off his semiannual update to Congress on Tuesday, appearing before the Senate Banking Committee. He will appear before the House Financial Services Committee tomorrow.
Powell indicated the central bank is inching closer to feeling comfortable about interest rate cuts, saying that he was encouraged by evidence of cooler inflation and that more “good data” would help get the Fed to where it wants to be.
The inflation numbers “have shown some modest further progress” after some hotter readings in the first quarter, “and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he said in prepared testimony before US lawmakers Tuesday.
It is the second time in the last week Powell has offered optimism about the inflation picture. Last Tuesday he noted that the last two inflation readings from April and May “do suggest that we are getting back on a disinflationary path.”
The next reading on inflation as measured by the Consumer Price Index is due out Thursday.
It isn’t expected to show inflation getting worse, but it also isn’t expected to drop, either. Based on “core” CPI — which excludes volatile food and energy prices the Fed can’t control — inflation is expected to hold steady at 3.4% in June from the same level in May.
Powell noted in his prepared testimony the Fed will continue to make decisions on monetary policy meeting by meeting. He reiterated that lowering rates too quickly could reverse progress on bringing inflation down, while keeping rates elevated for too long could weaken the economy and the job market.
Democrats are expected to press Powell to lower rates soon, while Republicans are likely to press Powell on bank capital rules and emphasize that rates shouldn’t be cut too close to the election in November.
Powell in his testimony underscored that Congress has entrusted the Fed with the operational independence that is needed to take a “longer-term perspective” in the pursuit of its dual mandate of maximum employment and stable prices.
Interesting observation on Chipotle
Chipotle (CMG) continues to be a beloved brand, despite TikTok posts suggesting the chain has cut back on its notorious giant portion sizes.
Interestingly, the company’s $15 bowls and $10 burritos appear to be more beloved by lower-income households.
Stifel analyst Chris O’Cull coming in hot with this research today:
“After reviewing mobile location data suggesting strong traffic performance in 2Q, we raised our same-restaurant sales projection to 10% from 8.5% (Street 8.8%). Interestingly, while the strength continued the broad-based trend from 1Q, growth from lower-income consumers outpaced growth from middle- and high-income consumers during the quarter. Given industry comments about weaker spending by lower-income consumers, we believe the positive value perception of CMG across all income segments contributed to the traffic performance.”