(Bloomberg) — Stocks hovered near all-time highs as Wall Street viewed Jerome Powell’s economic remarks as balanced, reinforcing speculation the Federal Reserve will be able cut rates this year.
Equities edged up, defying concerns about an overstretched market. Treasuries struggled to gain traction, though, as some traders were positioned for stronger policy-easing signals. Powell said “more good data” would strengthen confidence that inflation is moving down toward the 2% target, and recent readings point to “modest further progress” on prices. The Fed chair also noted cutting rates too soon or too much could stall or reverse inflation progress.
The S&P 500 rose for a sixth straight session. Nvidia Corp. led gains in chipmakers. Powell also said regulators are close to agreeing to changes to plans to force big banks to hold significantly more capital. US 10-year yields climbed four basis points to 4.32% ahead of a $58 billion three-year note sale. Swap traders continued to project two rate cuts in 2024.
Wall Street’s Reaction to Powell:
- Peter Boockvar at The Boock Report:
Jay Powell is maintaining his more balanced view on the economic outlook and the two mandates they focus on but with a window towards easing. Treasuries are down slightly as just maybe there was some positioning for more hints of dovishness. As stated, I’m becoming more confident that the Fed cuts in September.
- Krishna Guha at Evercore:
While some might have been hoping for a stronger rate-cut signal, we read his comments in particular on the evolving balance of risks as dovish and see him as continuing to lay the foundations for a potential September cut provided incoming data – in particular Thursday’s inflation report – sustain and support the Fed’s evolving assessment.
- Ian Lyngen at BMO Capital Markets:
The tone of Powell’s prepared remarks has been consistent with the recent emphasis on the employment component of the Fed’s dual mandate. While we’re not interpreting this as hinting that July could potentially see a cut, it certainly leaves September on the table.
Overall, a modestly dovish skew — but nothing that was far enough off-message to trigger durable price action in the Treasury market.
- Anna Wong at Bloomberg Economics:
Powell’s remarks to lawmakers are rife with references to labor-market risks. The Fed now appears to be placing equal weight on the employment leg of its dual mandate — in contrast to the past two years, when it explicitly prioritized price stability. Given our forecast for the unemployment rate to climb to 4.5% in 4Q, we expect that by year-end the Fed will be prioritizing the employment leg of its mandate.
- Stephen Brown at Capital Economics:
Powell leaves all options open.
The neutral tone of the opening statement seems at odds with the softer tone of the recent activity data, so our sense is that a September interest rate cut remains very much in play.
The Fed is looking for “more good data” to strengthen that confidence, a deliberately vague term that leaves all options open. We continue to expect two 25 basis-point cuts this year — in September and December.
Risk-taking traders are keeping a close eye on a heuristic recession indicator known as the Sahm rule after the latest jobs data.
The rule was conceived just a few years ago in 2019, but it has accurately indicated the start of a recession since 1970. With US stocks hovering near all-time highs and traders eyeing rate cuts this year, the prospects of a recession has tapered off as hopes for a soft-landing mount. But any sign of cracks in the labor market could challenge that confidence, forcing traders to reconsider their positions.
Wall Street has tilted toward the tech sector to a historic degree, raising the stakes should the artificial intelligence-fueled rally falter. Valuations are stretched, while earnings growth is poised to slow from here.
That adds to uncertainty for investors betting that Big Tech’s rally will continue, according to Lisa Shalett at Morgan Stanley’s wealth management unit, who warns of “stretched momentum, weak breadth and complacency” in the market.
The rally in artificial-intelligence stocks may show little sign of flagging, but a historical review suggests it’s time to take profit in the biggest names, according to strategists at Citigroup Inc. led by Drew Pettit. Sentiment toward AI-exposed equities is the strongest since 2019 and free cash flow at the bulk of those firms is forecast to outstrip analyst expectations, they said.
Corporate Highlights:
- Boeing Co. delivered 44 commercial aircraft in June, the highest monthly total since the company curbed work in its factories in the wake of a harrowing near-miss in early January involving a 737 Max jetliner.
- Paramount Global may have its credit rating cut to junk by Moody’s Ratings after the company agreed to sell itself to Skydance Media, with the bond grader citing “significant secular pressures” on Paramount businesses.
- Pershing Square has started a roadshow for the initial public offering of a US closed-end vehicle, which could be the largest fund of its kind in the US.
- Pfizer Inc. is planning to replace its top scientist after a more than 15-year career in charge of the company’s drug pipeline.
- The Biden administration is poised to lend $1.2 billion to Entek Lithium Separators LLC to help expand the US supply chain for lithium-ion batteries used in electric vehicles.
- BP Plc warned of “significantly lower” refining margins and predicted a writedown on the value of a plant in Germany of $1 billion to $2 billion.
Key events this week:
- China PPI, CPI, Wednesday
- Jerome Powell testifies to the House Financial Services Committee, Wednesday
- Fed’s Austan Goolsbee, Michelle Bowman and Lisa Cook speak, Wednesday
- US CPI, initial jobless claims, Thursday
- Fed’s Raphael Bostic and Alberto Musalem speak, Thursday
- China trade, Friday
- University of Michigan consumer sentiment, US PPI, Friday
- Citigroup, JPMorgan and Wells Fargo’s earnings, Friday
Some of the main moves in markets:
Stocks
- The S&P 500 rose 0.2% as of 11:14 a.m. New York time
- The Nasdaq 100 rose 0.2%
- The Dow Jones Industrial Average fell 0.2%
- The Stoxx Europe 600 fell 1%
- The MSCI World Index was little changed
Currencies
- The Bloomberg Dollar Spot Index rose 0.1%
- The euro fell 0.1% to $1.0808
- The British pound fell 0.1% to $1.2788
- The Japanese yen fell 0.4% to 161.45 per dollar
Cryptocurrencies
- Bitcoin rose 1.7% to $57,226.09
- Ether rose 1.7% to $3,050.28
Bonds
- The yield on 10-year Treasuries advanced four basis points to 4.32%
- Germany’s 10-year yield advanced four basis points to 2.58%
- Britain’s 10-year yield advanced six basis points to 4.17%
Commodities
- West Texas Intermediate crude fell 0.1% to $82.21 a barrel
- Spot gold fell 0.3% to $2,352.01 an ounce
This story was produced with the assistance of Bloomberg Automation.
–With assistance from Cecile Gutscher, Sujata Rao, Aya Wagatsuma, Matthew Burgess and Sagarika Jaisinghani.