Monday, July 15, 2024

Record-Breaking Highs on Wall Street: How a Slowing Economy Spur Hopes for Lower Rates


Wall Street Hits Records as a Slowing Economy Boosts Hopes for Lower Rates

In a remarkable turn of events, Wall Street soared to new heights on Wednesday, setting another record-breaking rally fueled by hopes that weakening economic reports could signal forthcoming cuts to interest rates. The S&P 500 surged by 0.5%, marking its second consecutive day at an all-time high and the 33rd record-setting close for the year. While the Dow Jones Industrial Average experienced a slight dip, losing 23 points, or 0.1%, the Nasdaq composite advanced by 0.9%, building further on its previous record.

Leading the charge was Tesla, which saw a 6.5% increase in its stock value after announcing a lesser-than-anticipated decline in spring sales. Similarly, Nvidia, a forerunner in the artificial-intelligence tech sphere, enjoyed a 4.6% rise, taking its year-to-date gains to an impressive 159%.

Yet, it was the bond market where the most notable action occurred, with Treasury yields dropping significantly in response to several economic reports indicating a slower-than-expected growth in the job market and services sector. This weakening economic data fosters optimism among investors that the Federal Reserve might implement rate cuts later this year to support the economy.

A particular report highlighted that activity in various U.S. service industries, such as real estate and retail trade, contracted in June, marking only the third such instance in 49 months. This data fell short of economists’ expectations, who had predicted a mere slowdown in growth rather than contraction, and suggested a deceleration in price increases.

The bond market reacted accordingly, with the yield on the 10-year Treasury falling to 4.35% from 4.44%, a move primarily attributed to the unexpected contraction in the services sector. These developments underscore the hopes that inflation is easing enough to prompt the Federal Reserve to lower its benchmark interest rate, which currently sits at its highest level in over two decades.

On Wall Street, despite mixed performance, the spirit remains bullish, buoyed by a traditionally strong period for stocks in the early days of July. Mark Hackett, Nationwide’s Chief of Investment Research, noted that this part of the year has historically been the most robust for stocks since 1928, with the S&P 500 showing gains in July for nine consecutive years.

In the global markets, positive sentiment was mirrored in Europe and Asia, with France’s CAC 40 and Tokyo’s Nikkei 225 among those posting gains, further recovering from recent losses spurred by various economic concerns.

As Wall Street continues its ascension, investors are guided by a cautiously optimistic outlook, betting that the economic slowdown is hitting the sweet spot—sufficient to temper inflation without leading to a recession. With a critical U.S. government report on job additions in June on the horizon, all eyes remain on the Federal Reserve’s next move, which could further define the market’s trajectory in the coming months.

Natalie Kimura
Natalie Kimura
Natalie Kimura is a business correspondent known for her in-depth interviews and feature articles. With a background in International Business and a passion for global economic affairs, Natalie has traveled extensively, providing her with a unique perspective on international trade and global market dynamics. She started her career in Tokyo, contributing to various financial journals, and later moved to London to expand her expertise in European markets. Natalie's expertise lies in international trade agreements, foreign investment patterns, and economic policy analysis.

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