Wall Street rises on hopes inflation pressures will ease

Tech-heavy Nasdaq hits all-time high led by gains in Nvidia and Apple

Traders work at the New York Stock Exchange on Friday. AFP
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US stocks rose on Friday after upbeat economic reports and data showed consumers tempered inflation expectations.

Wall Street got a bit of relief as University of Michigan data showed consumers expect prices to climb at a 3.3 per cent annual rate over the next year, down from the 3.5 per cent expected earlier in the month.

The report also showed that overall sentiment among US consumers was weakened by less in May than preliminary data had suggested.

The S&P 500 rebounded after a two-day slide. The index gained 0.7 per cent to 5,304.72. It made a tiny gain for the week, enough to extend its weekly growth streak to five.

The Dow Jones Industrial Average rose less than 0.1 per cent to 39,069.59, and the tech-heavy Nasdaq gained 1.1 per cent to 16,920.79, a fresh all-time high, led by gains in Nvidia and Apple.

On a weekly basis, the S&P 500 and the Nasdaq obtained their fifth straight Friday-to-Friday gains, while the Dow was on track to snap its five-week winning streak.

US 10-year yields fell one basis point to 4.46 per cent, with the bond market closing early ahead of the Memorial Day holiday.

Treasury yields were mixed after reports confirmed the US economy remains resilient, which could convince the Fed to hold off on cutting interest rates this year.

Cryptocurrency stocks climbed as the Securities and Exchange Commission paved the way for the eventual launch of the first US exchange-traded funds investing directly in Ether.

Worries about stubbornly high inflation were behind this week's rocky trading.

“The week hasn’t been pleasant for the market bulls. On Wednesday, the Federal Open Market Committee minutes showed the disturbing truth that many Fed members wondered whether keeping the rates high for longer was sufficiently restrictive to tame inflation, and if hiking the rates wouldn’t be a better idea,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank.

“And finally, a set of too-strong-to-be-pleasant data from the US gave a final punch to the bulls. The US services PMI accelerated way faster than expected in May, according to the S&P’s preliminary PMI data, manufacturing activity also improved, while jobless claims came in soft.”

The weakness began after the US Federal Reserve, on Wednesday, released minutes from its last policy meeting. It showed some officials talking about the possibility of raising rates if inflation worsens.

Stocks fell further after reports on Thursday indicated the US economy is stronger than expected. Such strength can trouble Wall Street because it could put upwards pressure on inflation.

That could delay the Federal Reserve from cutting its main interest rate, which is sitting at the highest level in more than 20 years.

Financial markets are now pricing just one rate cut in 2024, from the six cuts that were projected earlier in the year.

Goldman Sachs Group economists moved their forecast for the Fed’s first rate cut to September from July.

“Earlier this week, we noted that comments from Fed officials suggested that a July cut would likely require not just better inflation numbers but also meaningful signs of softness in the activity or labour market data,” they wrote.

This week's bumpiness for stocks came despite another profit report from Nvidia, which has rocketed to become one of Wall Street’s most influential stocks amid a frenzy around artificial intelligence.

“Nvidia remains a well-sheltered harbour from the rising hawkish winds. The stock jumped more than 9 per cent after beating revenue expectations for the first quarter and exceeding the forecast for the current quarter,” Ms Ozkardeskaya said.

“Nvidia is catapulted to the overbought market territory following Thursday's rally, but nothing suggests that the company’s good fortunes, or demand for AI, are about to reverse. Therefore, there is a good chance that the $1,000 per share level becomes the new dip for those who are willing to jump on the back of a bull.”

The dollar dipped against a basket of world currencies but remained well-placed to resume its advance as strong economic data has prompted markets to reduce rate cut hopes.

Gold prices rose but recorded their first weekly downturn in three weeks due to lowered rate cut expectations.

“Gold prices had been supported by international central bank purchases, which increased due to Western sanctions on Russia following its invasion of Ukraine,” said Rania Gule, market analyst at XS.com.

“Hawkish statements from the Federal Reserve could significantly impact gold prices. It is worth noting that higher interest rates exert downwards pressure on gold prices by increasing the opportunity cost of holding non-yielding assets.

“Moreover, a key reason for the recent sharp rise in gold prices was the private sector in China importing 543 tonnes of gold in the first quarter of 2024, with the People’s Bank of China adding another 189 tonnes to its reserves during the same period, significantly boosting gold prices.”

Updated: May 25, 2024, 5:49 AM