S&P 500 & Nasdaq Posted New Record Highs on June 12

Yesterday, Wednesday, June 12, saw new highs in Wall Street: the S&P 500 and the Nasdaq (NQ). The tech-heavy Nasdaq Composite climbed 1.5% to 17,608.44 points, taking its 2024 gain to 19%, while the S&P 500 increased by 0.9% to 5,421.04 points, making its yearly gain 14%. 

For the third day in a row, two of the most traded indices closed at all-time highs on Wednesday. What could be the surge's potential causes for these indices? Let's look into it:

Wall Street Cheered Lower Consumer Inflation

Consumer prices in the US surprised traders by remaining unchanged in May following a Consumer Price Index increase of 0.3% in April, the smallest increase since October 2023. Higher rental housing expenses were offset by lower prices for several items and Gasoline (RB), but annual inflation remained above the FOMC’s target in May at 3.3%, but lower than the 3.6% increase from April. The report also indicated a deceleration in the underlying inflation rate, as seen for instance by the first decline in auto insurance since the fourth quarter of 2021.

Some traders saw the report as a sign of potential cooling inflation in the U.S., which might have boosted Wall Street. The early-year surge in prices may be easing, potentially prompting the Fed to consider its first rate cut in years, bringing down the current 23-year high. This optimism likely fueled some of the rally yesterday, on Wednesday, June 12, but the Fed's monetary policy decision later that day dampened hopes for multiple rate cuts in 2024.

US Positive Inflation Report vs Lower Rate Cut Expectations

As expected, the Fed kept interest rates unchanged yesterday at 5.25%–5.50%. However, because of the slow progress on inflation, they indicated a more cautious approach to future cuts. Their prediction of three cuts in 2024 in December of last year has drastically changed, and they now expect only one cut this year. 

The amount of anticipated decreases from now until 2025 has also decreased from six in March to five (for a 1.25 percentage point decrease in total). This points to a slower monetary policy easing than was initially thought. 

Additionally, the Fed increased its forecast for long-term interest rates from 2.6% to 2.8%, signalling the start of a prolonged era of high interest rates. In addition, four officials—up from two earlier—now support no cuts this year, indicating an ongoing internal debate on monetary policy.

While the Fed showed a more hawkish stance than expected, the positive US inflation report potentially supported the rise of the S&P 500 and Nasdaq indices. Some stock sectors might also have helped both indices to reach new record closing highs.

Tech & Homebuilding Stocks Lift Wall Street

Some big tech and homebuilding related stocks seem to have recorded a strong performance on Wednesday, June 12, pushing Wall Street indices higher. 

Oracle (ORCL) posted a more than 11% increase and hit a new high in intraday trading on the announcement of agreements for cloud infrastructure with Google (GOOG), Microsoft (MSFT), and OpenAI.

Apple (AAPL) surged nearly 3% on Wednesday, June 12, following a 7% gain on Tuesday. Fueled by excitement around Artificial Intelligence (AI) announcements at their developer conference on Monday, Apple briefly recaptured the world's most valuable company title from Microsoft, but the rally fizzled before the closing bell, bringing Apple back to the 2nd most valuable company in the word by market cap. (Source: CNBC)

Homebuilding and suppliers related stocks also increased yesterday. Builders FirstSource jumped over 8%, while DR Horton (DHI) and Toll Brothers (TOL) each climbed more than 6%. PulteGroup (PHM) and Lennar (LEN) also saw gains exceeding 4%, and Home Depot (HD) rose more than 3%.

Conclusion

While consumer inflation data and the Federal Reserve's decisions were in the traders’ spotlight yesterday, potentially propelling the S&P 500 and Nasdaq to record highs, other US inflation data releases might influence the direction of both indices.

Today, Thursday June 13, the release of the Producer Price Index (PPI) is likely being closely watched by traders looking to gauge if inflation pressures have also cooled on the producer side. May's CPI data showed inflation might be peaking, but the PPI will provide further insights into producer-side price pressures. 

A lower-than-expected PPI reading could boost trader confidence and potentially fuel the current market rally, while a higher-than-expected number could raise inflation concerns and lead to a stock market crash.