Hamza Shaban
Stock market today: S&P 500, Nasdaq soar to fresh records after inflation cools and Fed sees improving outlook
In this article:
US stocks popped to fresh records Wednesday as investors digested a one-two punch: a cooler-than-expected reading on inflation, and the Federal Reserve holding interest rates steady but slashing projections for cuts this year.
The S&P 500 (^GSPC) notched a record close for the 28th time this year, rising about 0.9% and closing above 5,400. The tech-heavy Nasdaq Composite (^IXIC) rose about 1.5%, also adding to a record close from the prior day. The Dow Jones Industrial Average (^DJI) gave up 0.1%.
The Consumer Price Index (CPI) remained flat over the previous month and rose 3.3% over the prior year in May — a deceleration from April's 0.3% month-over-month increase and 3.4% annual gain in prices. Both measures beat economist expectations. On a "core" basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.2% over the prior month and 3.4% over last year — cooler than April's data. Both measures also came in better than economist estimates.
Later in the day, the Fed held rates steady at multi-decade highs and projected just one rate cut this year — down from three in March. Policymakers also projected core inflation would end the year at 2.8%, also an increase from March.
However, the Fed in its policy statement noted "modest" recent progress on inflation. To that end, Chair Jerome Powell said the Fed "welcome[d]" Wednesday's CPI print while noting it would need to see similar future readings to remain confident in inflation's progress.
"We have the ability now to approach this question carefully and that’s what we are doing," he said of rate cuts in response to a question from Yahoo Finance. He added that it is not the Fed’s plan to "wait for things to break and then try to fix them."
Read more: How does the labor market affect inflation?
LIVE COVERAGE IS OVER17 updates
Stocks gain after Fed holds rates steady and inflation cools
US stocks gained ground on Wednesday as investors took the Fed's latest policy decision in stride. Central bankers will keep rates unchanged but they improved their inflation outlook for the year and expect to cut rates later this year.
The S&P 500 (^GSPC) rose 0.9%, earning its 27th record close of the year, while the tech-heavy Nasdaq Composite (^IXIC) rose about 1.5%, also adding to a record close from the prior session. The Dow Jones Industrial Average (^DJI) gave up 0.1%
Curious on your thoughts about GameStop
I have been debating with my contacts today whether Ryan Cohen is creating a new version of Berkshire Hathaway (BRK-B) via GameStop (GME).
Maybe they are on to something: He did just raise $2.14 billion from a new share sale and GameStop is bordering a zombie company, just like the textile mill Buffett bought way back when.
I am curious about your thoughts on this one. Drop me a line on X @BrianSozzi.
Stocks largely resilient amid Powell presser
The median projection from Federal Reserve officials projected one interest rate cut this year. But a closer look at the dot plot shows that 15 officials predicted a rate cut this year. Eight penciled in two cuts and seven penciled in one.
Powell highlighted that this indicates that both outcomes are "plausible" and that the dot plot isn't "trying to send a strong signal."
And to Powell's point, it didn't send a strong signal to investors. Markets continued to price in two rate cuts this year, with the favored meeting for the Fed to cut sitting at September, unchanged from prior to the meeting.
Broadly, the major stock indexes changed little from the levels entering 2 p.m. ET, with the S&P 500 and Nasdaq on pace for record closes.
1 cut was a narrow majority for Fed officials
The Federal Reserve signaled Wednesday it would lower interest rates just one time this year, down from the three cuts the central bank anticipated in its previous March projection.
Fed officials see the fed funds rate peaking at 5.1% in 2024. That suggests the Fed will cut rates by 0.25%. The Fed has moved in 25-basis-point increments over the last year or so, indicating the central bank expects to cut interest rates one time in 2024.
But it was a close call. In total, 15 officials predict a rate cut this year, with eight officials estimating two cuts while seven officials see just one cut. Markets had been pricing in between one to two cuts heading into the release, according to Bloomberg data.
Next year, the majority of officials see the fed funds rate hitting 4.1%, suggesting four additional rate cuts to come in 2025 — up from the prior forecast of three.
The updated projections suggest the Federal Reserve will maintain a "higher for longer" policy stance as the central bank works to bring inflation back down to its 2% target.
The central bank left interest rates unchanged in a range of 5.25%-5.5% at the conclusion of its meeting on Wednesday. Earlier in the day, a cooler-than-expected reading on inflation delivered welcome news for Fed policymakers, but it is unlikely to change the central bank's stance on rates.
The SEP indicated the Federal Reserve sees core inflation peaking at 2.8% this year — higher than March's projection of 2.6% — before cooling to 2.3% in 2025 and 2.0% in 2026.
Officials see the unemployment rate holding steady at 4.0% in 2024, matching the previous forecast. Unemployment is expected to tick higher to 4.2% in 2025 before coming down to 4.1% in 2026.
The Fed maintained its previous forecast for US economic growth, with the economy expected to grow at an annualized pace of 2.1% this year before ticking down slightly to 2.0% in 2025 and remaining at that level through 2026.
Fed holds interest rates steady, projects 1 rate cut this year
The Federal Reserve held rates steady in a range of 5.25%-5.50% at the conclusion of its two-day policy meeting on Wednesday. The central bank has maintained this range since July after it hiked rates to their highest level in 22 years.
Along with its policy announcement, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future.
Fed officials see the fed funds rate falling to 5.1% by the end of 2024. That suggests the Fed will cut rates by 0.25% this year, or one rate cut. That's one fewer rate cut than markets had been projecting entering the release.
Fed Chair Jerome Powell will hold a press conference at 2:30 p.m. ET.
Where stocks stand entering the Fed decision
The Federal Reserve is widely expected to hold interest rates steady when it makes its policy announcement at 2 p.m. ET.
Investors will also be watching for the release of a new projection about 2024 rate cuts in the form of a "dot plot," a chart updated quarterly that shows each Fed official's prediction about the direction of the federal funds rate.
Entering the announcement, stocks have been rallying after a cooler-than-expected inflation report on Wednesday morning. As of about 1:30 p.m. ET, the S&P 500 (^GSPC) rose more than 1.1%. The tech-heavy Nasdaq Composite (^IXIC) popped nearly 1.9%, also adding to a record close from the prior day. Meanwhile, the Dow Jones Industrial Average (^DJI) was up just more than 0.1%.
The 10-Year Treasury yield (^TNX) fell about 14 basis points to 4.26%, its lowest level since April 1. Subsequently, interest rate-sensitive areas of the market soared. The small-cap Russell 2000 (^RUT) index rallied more than 2.6%.
Stocks have been reacting well to Fed meetings recently
The S&P 500 (^GSPC) has risen in the 10 trading sessions following four of the last five Fed meetings after Jerome Powell’s press conference began. This reflects how markets have largely viewed the Fed chair as dovish since the central bank’s tone shifted in November of last year.
Entering Wednesday’s press conference, markets are now pricing in two rate cuts this year. Schwab Asset Management CEO and chief investment officer Omar Aguilar told Yahoo Finance during a media roundtable on Tuesday that market pricing remaining in line with the Fed’s thinking — as well as what the central bank actually does down the line — will remain paramount for how stocks react following the press conference.
“A lot of what is priced into the markets today is the fact that there will be two cuts by the end of this year, with the first one being in September,” Aguilar said. “So any data that changes that potential will make the markets move.”
What to expect in today's Fed meeting after promising May CPI
A promising inflation print on the morning of the latest policy announcement from the Federal Reserve has economists feeling optimistic about the central bank's statement, and Fed Chair Jerome Powell's press conference may lean more dovish than initially expected.
The Consumer Price Index (CPI) for May showed the lowest yearly increase for consumer prices since July 2022. Across the board, the print showed slower inflation measures than economists had expected.
Given the "magnitude" of these surprises, JPMorgan chief US economist Michael Feroli believes the data could shift how the "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future, comes in at 2 p.m. ET.
"We had thought it was a close call between the median dot showing one or two eases this year," Feroli wrote in a note to clients. "If participants actively update their dots, as they are allowed to, this should increase the odds of a two-cut median dot."
Feroli added that the inflation data will likely push the Fed to remove the sentence from its May statement that said, “In recent months, there has been a lack of further progress toward the Committee's 2 percent inflation objective.”
While Powell may not directly mention it, other economists have reasoned that, given Wednesday's positive inflation data and the recent spike in the unemployment rate, the Fed should be close to cutting interest rates to ensure minimal damage to the labor market.
"The unemployment rate has increased 0.6 [percentage points] from its low to 4.0%, hitting the March [summary of economist projections] estimate two quarters ahead of schedule and core inflation has eased," Renaissance Macro head of economics Neil Dutta wrote in a note on Wednesday. "A rough rule of thumb would be to assume 0.1% on core PCE at the end of the month.
He added, "It does not take a rocket scientist to figure out what needs to be done. It is time to begin recalibrating monetary policy."
Ark says Telsa could hit $2,600 per share by 2029. Elon Musk calls the target 'achievable'
Tesla (TSLA) stock rose more than 4% on Wednesday leading into a crucial shareholder vote on CEO Elon Musk's pay package, which is expected after the bell on Thursday.
Ark Invest released new Tesla research on Wednesday heading into the vote. The firm, led by Cathie Wood, believes Tesla stock could be worth $2,600 per share by 2029.
Wood's team believes the launch of Tesla's robotaxi "in the next two years" will drive most of the stock's value.
"ARK estimates that nearly 90% of Tesla’s enterprise value and earnings will be attributed to the robotaxi business in 2029," the report reads. "Meanwhile, electric vehicles could approximate a quarter of total sales and ~10% of Tesla’s earnings potential, as we believe the robotaxi business will have much higher margins."
Ark believes in a bull-case scenario for Tesla and that robotaxi revenue will be nearly 90% of Tesla's total revenue. Tesla was trading just shy of $180 per share on Wednesday, meaning Ark is projecting more than a 1,300% increase in shares over the next five years.
CEO Elon Musk responded to the research note on X, noting it would be "extremely challenging, but achievable."
The positive read through from May CPI
Consumer price increases cooled more than expected during the month of May.
That data from the Bureau of Labor Statistics has economists feeling better about another inflation measure, Personal Consumption Expenditures, which is the Fed's preferred inflation gauge and is due out at the end of June.
Morgan Stanley chief economist Ellen Zentner reasoned that Wednesday's CPI data implies core PCE, which excludes the volatile food and energy categories, increased 0.12% in May.
Zentner notes this would be the slowest core PCE increase of 2024 and "the second consecutive reading adding to the convincing evidence the Fed needs to start cutting in soon."
"We expect more deceleration ahead, especially in [second half of 2024], and we maintain our call for a first cut in September this year, followed by cuts at every meeting through mid-2025," Zentner said.
Apple reclaims spot as largest stock in the world
Apple's (AAPL) stock gained nearly 4% on Wednesday morning, extending gains from its best single-day move in a year on Tuesday.
The move catapulted the iPhone maker's market cap higher than Microsoft's (MSFT), making it the largest stock in the world. Apple's market cap eclipsed $3.3 trillion on Wednesday, moving higher than Microsoft's market cap of $3.25 trillion.
Apple stock has rallied as investors digest the announcement of its AI platform, Apple Intelligence, which some Wall Street analysts have cheered as a potential catalyst to spark the next upgrade cycle for the iPhone.
Below is a look at the market caps, in trillions, of the largest stocks in US markets.
Source: Yahoo Finance Stocks rise at the open as yields fall
US stocks popped on Wednesday after a fresh reading on inflation showed consumer prices increased less than expected in May. The latest snapshot of inflation comes hours before a highly anticipated Federal Reserve meeting in the afternoon will provide the latest signal on the path of interest rates.
The S&P 500 (^GSPC) built on a 27th record close of the year, rising more than 0.8%. The tech-heavy Nasdaq Composite (^IXIC) rose nearly 0.9%, also adding to a record close from the prior day. The Dow Jones Industrial Average (^DJI) also popped about 0.9%.
The 10-year Treasury yield (^TNX) fell about 10 basis points to 4.3%.
It's risk on in markets after the CPI print
Stock futures shot higher after the cooler-than-expected reading on consumer prices for the month of May.
S&P 500 futures (ES=F) built on a 27th record close of the year, rising 0.7%. Futures on the tech-heavy Nasdaq 100 (NQ=F) rose nearly 0.9%, also pointing to gains after a record close for the index. Dow Jones Industrial Average futures (YM=F) gained 0.6%.
Notably, interest rate-sensitive areas of the market saw the biggest gains. Futures tied to the Russell 2000 (RT=F) were up about 2.3%.
This came as investors quickly recalibrated their expectations for rate cuts this year. Following the data's release, markets were pricing in a roughly 69% chance the Federal Reserve begins to cut rates by its September meeting, according to data from the CME FedWatch Tool. That's up from about a 53% chance the day prior.
Inflation pressures ease more than expected
US consumer price increases cooled during the month of May, according to the latest data from the Bureau of Labor Statistics released Wednesday morning.
The Consumer Price Index (CPI) was flat over the previous month and 3.3% over the prior year in May, a deceleration from April's 3.4%, and lower than the 3.4% year-over-year change economists had expected.
May's monthly increase came in lower than economist forecasts of a 0.1% uptick.
On a "core" basis, which strips out the more volatile costs of food and gas, prices in May climbed 0.2% over the prior month and 3.4% over last year — cooler than April's data. Both measures were lower than economist expectations.
Nvidia as the sun...
A tip of the hat to Apollo chief economist Torsten Sl?k for this vibe check on the S&P 500. (Note: Apollo is the parent company of Yahoo Finance.)
Clearly, Nvidia (NVDA) is the sun that 499 other companies revolve around.
It's a Nvidia market. (Apollo) JPMorgan weighs in on the Musk pay package vote
The Tesla (TSLA) shareholder vote on Elon Musk's $56 billion pay package is coming down to the wire.
Ahead of the vote on Thursday, Tesla just dropped this post on Musk-owned X detailing its CEO's accomplishments (note this is weird to see from a corporate X account, but hey, this is Musk we are talking about here).
A new Yahoo Finance poll is currently showing 96% of the people that have voted think Musk's pay package shouldn't be approved.
Meanwhile, JPMorgan analyst Ryan Brinkman is weighing in with a note this morning:
"While both ISS and Glass Lewis, as well as several prominent institutional and retail shareholders, have voiced opposition to the 2024 ratification of Mr. Musk’s 2018 compensation plan, we rather suspect it will pass, albeit with a lesser approval rate than in 2018 and perhaps by a lesser margin than popularly imagined. We base this expectation on anecdotal evidence of strong retail shareholder support and based on our conversations with institutional investors whose reasoning, on the whole, seems similar to when asked to vote in favor of the Solar City acquisition. Investors we spoke with then largely did not support the Solar City acquisition, but worried there would be a more negative share price reaction in the event the transaction were voted down, given the perception of a vote of no confidence."
Brinkman reiterated an Underweight rating (Sell equivalent) on Tesla shares and a $115 price target, which assumes about 32% downside from current price levels.
Read more here on the Musk vote and key CEO pay package votes from Yahoo Finance Senior Legal Reporter Alexis Keenan.
Affirm still on the move after big Apple deal
Affirm (AFRM) is still one of the hotter tickers on the Yahoo Finance platform after news dropped Tuesday of an integration into Apple (AAPL) Pay. Shares are up 1.5% pre-market following an 11% pop yesterday.
I caught up last night with Affirm's founder and CEO Max Levchin for a new taping of my "Opening Bid" podcast. The full episode (which goes into Levchin's views on AI and the political vibes in Silicon Valley) will release on Friday morning on Yahoo Finance and major podcast platforms.
But I put a clip of Levchin's comments on the tie-up below for you to check out.
Levchin stops short of sharing how this deal will financially impact Affirm (could be big given the 1.4 billion iPhones out in the wild worldwide), but hinted it could be a strong top- and bottom-line contributor over time.
He did acknowledge the deal "validates" the buy now, pay later space — which has been under siege by regulators and other parties almost since inception.
