Alexandra Canal
Stock market today: S&P 500, Nasdaq build on record highs as Powell testimony keeps rate cut hopes alive
The S&P 500 and Nasdaq nabbed new record closes on Tuesday (and also each notched their sixth straight day of gains) as rate cut hopes remained intact after Federal Reserve chair Jerome Powell kicked off his semiannual update to Congress.
The S&P 500 (^GSPC) finished just above the flatline to book its 36th record close of the year, while the tech-heavy Nasdaq Composite (^IXIC) also built on its previous record to close up about 0.1%. The Dow Jones Industrial Average (^DJI), which seesawed throughout the trading session, closed down around 0.1%.
Stocks have achieved fresh all-time highs as signs of a US economic slowdown bolster bets on interest-rate cuts.
Powell shed light on the Fed's picture of the economy, commencing his twice-yearly policy update to Congress on Tuesday with an appearance in the Senate. In prepared remarks, the central bank leader said he's encouraged by evidence of cooler inflation, but that the Fed still needs more "good data" to be confident that inflation is moving towards its 2% target.
Traders still placed bets that the Fed will cut interest rates twice this year. "We’re increasingly confident in our forecast that the Fed will cut rates in September," wrote Oxford Economics chief US economist Ryan Sweet.
Powell will appear before the House on Wednesday, setting the stage for a key update on consumer inflation on Thursday — all potential catalysts for stocks if they confirm a cooling.
But a note of caution is seeping into the market as the idea of a summer pullback gets more backers, with Morgan Stanley strategist Mike Wilson calling for a 10% correction.
LIVE COVERAGE IS OVER10 updates
How to play the AI trade? Broaden your exposure
There's been massive interest in artificial intelligence (AI). So much so that the Magnificent 7 has driven about two-thirds of the S&P 500 returns.
But is it a bubble? Citi says no — at least for now.
"Sentiment around stocks with high exposure to AI is the most elevated it has been since 2019," Drew Pettit, director or US equity strategy at Citi, wrote in a new research note on Tuesday. "We continue to suggest investors take profits in AI highfliers, notably the enablers (ex. Semiconductors), and rebalance towards a broader array of AI stocks across the value chain."
In other words, take the AI-driven profits and use them to broaden your AI exposure across your portfolio.
"Practically speaking, not owning, or outright positioning against, AI would be difficult for many on the buy-side."
(Source: Citi Research) Powell: Fed needs more 'good data' in order to cut rates
Federal Reserve Chair Jerome Powell kicked off his semiannual update to Congress on Tuesday, appearing before the Senate Banking Committee. He will appear before the House Financial Services Committee tomorrow.
Yahoo Finance's Jennifer Schonberger has the story:
Powell indicated the central bank is inching closer to feeling comfortable about interest rate cuts, saying that he was encouraged by evidence of cooler inflation and that more "good data" would help get the Fed to where it wants to be.
The inflation numbers "have shown some modest further progress" after some hotter readings in the first quarter, "and more good data would strengthen our confidence that inflation is moving sustainably toward 2%,” he said in prepared testimony before US lawmakers Tuesday.
It is the second time in the last week Powell has offered optimism about the inflation picture. Last Tuesday he noted that the last two inflation readings from April and May "do suggest that we are getting back on a disinflationary path."
Federal Reserve Board Chair Jerome Powell speaks at a news conference at the Federal Reserve in Washington, June 12, 2024. (AP Photo/Susan Walsh, File) The next reading on inflation as measured by the Consumer Price Index is due out Thursday.
It isn’t expected to show inflation getting worse, but it also isn’t expected to drop, either. Based on “core” CPI — which excludes volatile food and energy prices the Fed can’t control — inflation is expected to hold steady at 3.4% in June from the same level in May.
Powell noted in his prepared testimony the Fed will continue to make decisions on monetary policy meeting by meeting. He reiterated that lowering rates too quickly could reverse progress on bringing inflation down, while keeping rates elevated for too long could weaken the economy and the job market.
Democrats are expected to press Powell to lower rates soon, while Republicans are likely to press Powell on bank capital rules and emphasize that rates shouldn't be cut too close to the election in November.
Powell in his testimony underscored that Congress has entrusted the Fed with the operational independence that is needed to take a “longer-term perspective” in the pursuit of its dual mandate of maximum employment and stable prices.
Interesting observation on Chipotle
Chipotle (CMG) continues to be a beloved brand, despite TikTok posts suggesting the chain has cut back on its notorious giant portion sizes.
Interestingly, the company's $15 bowls and $10 burritos appear to be more beloved by lower-income households.
Stifel analyst Chris O'Cull coming in hot with this research today:
"After reviewing mobile location data suggesting strong traffic performance in 2Q, we raised our same-restaurant sales projection to 10% from 8.5% (Street 8.8%). Interestingly, while the strength continued the broad-based trend from 1Q, growth from lower-income consumers outpaced growth from middle- and high-income consumers during the quarter. Given industry comments about weaker spending by lower-income consumers, we believe the positive value perception of CMG across all income segments contributed to the traffic performance."
O'Cull reiterated his Buy rating on the stock.
Lower income households flock to Chipotle given greater value perception.
