Interest rate fantasies set new Wall Street records
Interest rates continue to be the driving force on Wall Street. At the end of a truncated trading day, both the S&P500 and Nasdaq indices set new records. No trading will take place on July 4th due to the Independence Day holiday. Similar to the previous day, a steady uptrend followed a subdued start, with renewed bond yield decline being the catalyst.
After US Federal Reserve President Jerome Powell's statement the previous day that inflation was on the decline had already boosted bond investors, they fell significantly again. In the late bond trading - the bond market closes at 20.00 CET - the 10-year yield dropped by 8 basis points to 4.35%.
The catalyst this time was an unexpectedly weak ISM Purchasing Managers Index for the services sector. It also slipped into the contraction territory in June, while the disappointing US new orders for manufacturing in May had the same effect. "The economy seems to have weakened towards the end of the quarter," said Bill Adams, Chief Economist of Comerica Bank.
Investors also looked to labor market signals. Initial jobless claims rose slightly in the previous week. However, the private sector job creation came in at 150,000 in June, which was slightly below expectations. The official US employment report will be released on Friday.
The Dow Jones Index lagged behind, losing 0.1% to 39,308 points. It was particularly held back by the heavily weighted UnitedHealth stock, which fell by 1.8%. The broader S&P500 and the technology-heavier Nasdaq indices rose by 0.5% and up to 0.9%.
The Dollar fell with the negative economic surprise and declining yields. The Euro was last traded at 1.0790 Dollars. The Dollar index lost 0.4%. At the commodity market, gold prices rose strongly by 1.5% to 2,634 Dollars per ounce and reached their highest level since almost two weeks. Silver gained 3.9% to 30.67 Dollars per ounce. Lower interest rates increase the attractiveness of interest-free investments. At the oil market, prices remained stable, staying within their two-month highs. They reacted slightly positively to the unexpectedly large decline in US oil inventories in the previous week.
Tesla once again gains ground
Among individual stocks, Paramount Global rose by 6.9%. After a long tug-of-war, the film studio is on the verge of being acquired. Skydance has reportedly reached a preliminary agreement to buy National Amusements, the majority owner of Paramount, for $1.75 billion. Skydance is then expected to merge with Paramount.
Constellation Brands, the beer manufacturer, reported a profit increase in the first quarter of the fiscal year but missed sales expectations. The trend then turned negative. The company also expects lower sales volumes and lower margins in the second half of the year due to maintenance work at breweries, as CFO Garth Hankinson revealed during the earnings call.
The Tesla stock price rose by 6.5 percent. The day before, it had risen by about 10 percent, driven by the news that Tesla sales in the second quarter had not fallen as much as expected. Some analysts raised their price targets in response. The analysts from Wedbush Securities said that after a "very turbulent start" in 2024, this could be a turning point for Tesla towards the positive.
However, investors took profits in First Foundation, the credit provider focusing on mortgages for multi-family homes, after an unexpected capital increase. The Texas-based institution raised $228 million from investors.
The S&P 500 Autos Subindex, heavily influenced by Tesla, was again the daily winner, followed by semiconductor stocks. At the end, the less interest-rate sensitive Consumer Goods and Pharma titles ranked lower.
- The Federal Reserve's interest rate policy plays a significant role in influencing Wall Street, as lower interest rates can increase the attractiveness of interest-free investments and boost share prices.
- Amidst concerns about the US economy, the Fed carefully considers its interest rate policy, as a key interest rate adjustment can impact inflation and potentially affect the stock market, including indices like the S&P500 and Nasdaq.
- As US economic data continues to shape investor sentiment, the Fed closely monitors indicators such as the ISM Purchasing Managers Index, initial jobless claims, and private sector job creation to gauge the economy's health and inform their interest rate policy decisions.
