Traders Anticipate US Rates Near Peak as S&P 500 Achieves 14-Month Closing High

The S&P 500 and Nasdaq reached their highest levels in 14 months on Thursday, eliciting excitement from investors who interpreted the positive economic data as a sign that the U.S. Federal Reserve is nearing the end of its aggressive interest-rate hike campaign. This led to a decrease in Treasury yields, as the data indicated easing inflation, alleviating concerns about future rate hikes. As a result, Apple and Microsoft saw record highs. The data revealed unexpected growth in U.S. retail sales for May, with consumers showing increased spending across various goods, including vehicles. Another dataset indicated that jobless claims remained unchanged for the week ended June 10, exceeding economists’ expectations. Import prices also experienced a decline in May, with the annual decrease being the sharpest in three years. These reports, coupled with Tuesday’s revelation that April’s headline inflation increased less than anticipated, influenced the Federal Reserve’s decision to leave rates unchanged. Analyst Ross Mayfield believes that due to the softer inflation data and strong economic performance, investors no longer believe that the Fed will implement two more rate hikes. The market is now speculating a 67% chance of a 25-basis point rate hike in July, followed by a potential rate cut by December. Sectors sensitive to economic fluctuations enjoyed growth, with all 11 S&P 500 sector indexes rising, particularly healthcare and communication services. The optimism in the market is fueled by the return of investors who were previously cautious about a recession but have now regained confidence in equities. So far in 2023, the S&P 500 has seen a 15% increase, while the Nasdaq has climbed by 32%, bolstered by positive economic indicators, a better-than-expected earnings season, and the belief that interest rates are reaching their peak. The S&P 500 ended the day with a 1.22% increase at 4,425.84 points, while the Nasdaq rose by 1.15% to reach 13,782.82 points, bringing its weekly gain to approximately 4%. The Dow Jones Industrial Average also experienced growth, rising by 1.26% to reach 34,408.06 points. Trading volume on U.S. exchanges exceeded expectations, with 11.8 billion shares traded compared to the average of 10.9 billion shares over the prior 20 sessions. Kroger Co saw a 2.7% drop after missing first-quarter revenue estimates, while Kohl’s Corp experienced a 2.7% increase after TD Cowen upgraded the department store operator to “outperform.” U.S.-listed shares of Alibaba Group and JD.com both gained more than 3% after the People’s Bank of China reduced its borrowing costs for medium-term policy loans, which marked the first decrease in 10 months. Overall, advancing issues outnumbered falling ones within the S&P 500 by a ratio of 7.1-to-one, with 48 new highs and no new lows. The Nasdaq recorded 80 new highs and 72 new lows.

 

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