Editor
On Thursday, Wall Street had a strong day, with the S&P 500 getting closer to breaking its record high. Investors are feeling optimistic about potential interest rate cuts while also taking in some not-so-great news about the economy.
After a long wait—16 months, in fact—the S&P 500 is now nearly at its first record close since February 2024. It jumped by 0.8%, fueled by hopes that the Federal Reserve might finally consider lowering interest rates due to signs that the economy is slowing down and some political pressure from Washington.
The Nasdaq Composite, which is heavy on tech stocks, rose more than 1%, and the Dow Jones Industrial Average climbed nearly 400 points, or 0.9%. Nvidia continued its impressive run, gaining another 1% after hitting a record high on Wednesday.
Political Signals Point to Fed Shake-Up
Recently, a report came out indicating that former President Donald Trump might soon announce his choice to replace Jerome Powell as chair of the Federal Reserve, possibly in September. As the likely Republican nominee, Trump has openly expressed his dissatisfaction with Powell’s cautious approach to interest rates. This has led markets to speculate that if Trump returns to the presidency, he could push for more lenient monetary policies. Diane McAllister, an economist at Harrison & Cole Analytics, pointed out that while political pressure on the Fed isn’t new, investors now feel that Trump might quickly appoint someone with a more relaxed stance on rates. This belief is driving hopes for earlier rate cuts, despite what the current economic data suggests.
Weak Economic Data Adds Fuel
The latest data isn’t looking too promising. The U.S. economy shrank by 0.5% in the first quarter, which is a bigger decline than what was expected. At the same time, jobless claims have gone up again, with ongoing claims reaching their highest point since 2021. On a slightly positive note, mortgage rates have dropped below 6.8% for the first time in over a month. However, it’s still not enough to kick-start the housing market.
Monica Reyes, a senior market strategist at Greywater Capital, pointed out, “There’s a clear slowdown happening across the board.” She mentioned that if the inflation measure from the Fed looks good when it’s released on Friday, this might be the sign that investors have been waiting for.
People are keeping an eye on the Personal Consumption Expenditures (PCE) index, which is a key indicator of inflation for the Fed. Any hints that rising prices from tariffs or supply chain issues are affecting the economy might make things tricky for plans to lower rates.
Tariffs, Trade Deadlines, and a Slipping Dollar
Recently, there’s been a new development regarding tariffs from the White House. Press Secretary Karoline Leavitt played down the importance of the July 9 deadline for countries to make trade deals with the U.S. She mentioned that the president has the option to introduce “reciprocal tariffs” if talks don’t go well. This uncertainty seemed to affect the dollar, which dropped to its lowest level since April 2022, and Treasury yields decreased too, with the 10-year note hovering around 4.25%. George Kim, a global strategist at Hanover Trust, pointed out that while markets dislike uncertainty, they prefer the flexibility in policy, especially if it helps the Fed adjust rates.
Eyes on the Finish Line
As the week comes to a close, all eyes are on the PCE report. If inflation takes an unexpected dip, it might just be the boost the S&P 500 needs to reach new highs. But some experts are urging caution. McAllister mentioned that “this market is living on borrowed time.” If inflation rises again or if global tensions increase, our current sense of optimism could vanish in a flash. For now, it looks like Wall Street is happily riding this wave of hope and political drama, aiming for that milestone.
