Fed Signals Softer Stance, U.S. Stock Market Surges

Fed Signals Softer Stance, U.S. Stock Market Surges

The S&P 500 and Nasdaq Composite indices both set new records as investors reacted positively to Federal Reserve Chairman Jerome Powell's optimistic assessment of inflation.

At the close of trading on July 2, the S&P 500 index rose 0.62% to 5,509.01 points, marking the first time it surpassed the 5,500 mark. The Nasdaq Composite index also climbed 0.84% to 18,028.76 points. Both indices closed at record highs, primarily driven by the explosive growth of Tesla stocks. The Dow Jones index increased by 162.33 points (0.41%) to 39,331.85 points.

Tesla stocks surged over 10% to their highest level since early January, following a report that vehicle deliveries to customers in the second quarter only fell by 5% compared to expectations. Other major tech stocks such as Apple rose by 1.6%, while Amazon.com and Alphabet also saw gains due to the easing of U.S. Treasury yields.

Speaking at the annual European Central Bank (ECB) conference in Sintra, Portugal, Federal Reserve Chairman Jerome Powell said, "We have made some progress in bringing inflation to our target. The latest and prior inflation data indicate that the process of reducing inflation has resumed. We want to ensure that inflation will sustainably decrease to 2% before we can start easing policy."

Following Powell's latest statements, U.S. Treasury yields slightly declined, and U.S. stock indices rebounded from their session lows. The yield on the 10-year Treasury note fell by 4.9 basis points to 4.43%.

Chicago Fed President Austan Goolsbee warned that the U.S. Central Bank needs to be cautious with its tightening monetary policy as the economy shows signs of weakening. He noted, "I see some warning signs that the economy is slowing down. While the economy remains fairly strong, it is beginning to shift from a very hot state to a weaker one."

Nvidia stock fell 1.3% after having risen more than 150% in the first half of the year, raising questions among investors about whether the artificial intelligence (AI) frenzy on Wall Street can last through the end of the year. Shares of pharmaceutical manufacturer Eli Lilly increased by about 0.8%.

Quincy Krosby, global strategy director at LPL Financial, stated, "The recent volatility in Nvidia stock indicates market volatility, but it also provides an opportunity for investors who missed the earlier gains to participate. However, if the volatility in Nvidia and other tech stocks persists, it could signal a shift in the market towards other stocks instead of focusing on technology."

Krosby predicts significant volatility on Wall Street in July but expects the month to end positively, especially if the U.S. economy continues to cool at a steady pace.

Wall Street kicked off the second half of 2024 with a positive trading session. The S&P 500 rose 0.3%, Nasdaq Composite increased by 0.8%, closing at a record high, while the Dow Jones saw a smaller gain. The S&P 500 climbed 14.5% in the first half of 2024. Trading volume may be subdued this week as the New York Stock Exchange (NYSE) will close early on July 3 and remain closed on July 4 for Independence Day.