Nvidia, Microsoft Hit Records as Dollar Falls

The US Dollar Index (DX) fell to its lowest level since March 2022 on Wednesday, 25 June, following reports that US President Donald Trump plans to announce the replacement of Fed Chair Jerome Powell earlier, by either September or October. 

Appointing a new Fed Chair earlier than expected allowed market participants to consider a shadow Fed chair as a dovish event, which repriced dollar-denominated Gold (XAU) a tad higher early Thursday. The yellow metal may struggle to increase meaningfully due to profit-taking following the de-escalation in the Middle East.  

Meanwhile, the S&P 500 (ES) closed flat but remained within breathing distance from record highs, while the Nasdaq (NQ) extended its record run from Tuesday, supported by new all-time highs from Nvidia (NVDA) and Microsoft (MSFT). However, the Dow Jones (YM) lost 0.4%, with only AI darlings staying afloat.

With the Fed Chair's Testimony ending on Wednesday on a rather persistently cautious stance by Powell, all eyes have now turned to the GDP reading later on Thursday and the Fed’s favourite PCE print on Friday.

Markets React to Potential Changes in Fed Leadership

The Wall Street Journal reported on Wednesday that Trump was considering announcing a new Fed Chair some 11 months before Powell’s term ends in May 2026. The idea of an early appointment raised concerns about the independence of the central bank and undermined the Fed Chair himself, allowing markets to price in further interest rate cuts. Compared to just a week ago, the odds of a July cut have fallen to 25% from 12% while the chances of around two cuts in 2025 increased to nearly three at 64 bps.

Following turbulence in the markets sparked by the conflict between Israel and Iran, trade risks and fiscal concerns that could pressure earnings and growth in the US, it appears that the cease-fire deal announced earlier this week has allowed markets to extend gains. The S&P 500 increased by over 2% in the couple of sessions before last, coming less than 1% away from record highs, as these roadblocks keep getting eliminated. However, some analysts remain cautious about inflation from tariffs, expecting a gradual and measured upside from hereon. (Source: CNN)

Meanwhile, Powell reiterated his view during his 2-day Testimony on Tuesday and Wednesday this week that Trump’s tariffs could trigger inflation spikes, with the risk of sticky inflation warranting the Fed’s cautious stance around implementing more rate cuts or doing so more quickly. Trump labelled Powell as a “terrible” Chair after his testimony for not cutting rates, though JPMorgan (JMP) also warned of risks from tariffs to the US economy. The bank said that the weakness in the dollar and subsequent rise in the pound and the euro stem from the end of US “exceptionalism.” 

Tech and Health Lead Market Rally

While Powell persisted that the Fed is in no hurry to cut rates, AI darling Nvidia and Microsoft soared to record highs, with tech majors Alphabet (GOOG) and Apple (AAPL) also posting gains. NVDA rose around 4.3% on Wednesday following the quarterly earnings report of Micron Technology (MU), a critical Nvidia partner supplying HBM chips for Nvidia’s AI accelerators. Micron’s earnings report beat estimates, which boosted the entire AI semiconductor sector. Some analysts are even calling Nvidia the next “cash cow”, given the rapid pace of growth noted in the company’s cloud-computing services, DGX Cloud. Meanwhile, Microsoft recorded its 12th record high this month due to the company’s AI monetisation efforts, especially for enterprise clients. Wedbush and Wells Fargo (WFC) analysts have recently raised the price target for MSFT to $600 from $515 and to $585 from $565 per share, respectively.

Besides tech, health care also gained. Eli Lilly (LLY) rose 1.83%, Thermo Fischer (TMO) 1.55% and Amgen (AMGN) 1.03%, with specialty and generic drug manufacturers seeing the most gains, followed by diagnostics and research. Analysts expect Eli Lilly to rise to $951 from $792 per share, with Guggenheim reiterating its Buy position on 20 June. Following sales of its weight-loss drug Mounjaro in India back in March, the company received approval from the country’s regulator on Thursday, 26 June, to launch its pre-filled injector pen instead of just vials, allowing it to better compete with Novo Nordisk’s (NOVO-B.CO) Wegovy. Meanwhile, Citi also reaffirmed its bullish outlook due to growth expectations from the 2026 launch of the obesity treatment drug orforglipron. Analysts suggest that there is at least a $15 billion opportunity that has yet to be reflected in current share pricing.

Despite some stocks rising, investors and traders alike wonder whether the market rally can continue.

Catalysts to Look Forward to

Tariff uncertainty has kept markets volatile this year. The S&P 500 nearly entered a bear market back in April after hitting a new record high just in February, and is re-attempting a record close once again after gaining around 3% in June, as the worst of the tariffs are in the past. However, the existing tariffs may still lead to an economic slowdown in the US, accompanied by higher inflation, and perhaps force the Fed to keep interest rates on hold for longer. 

On the one hand, July marks the expiration of tariff deadlines, the start of the next earnings season, and potential developments in the Israel-Iran conflict. On the other hand, these events have already established a precedent in 2025, and market participants might focus more on the situation surrounding US jobs and how Treasury yields perform during the summer, as concerns about the US deficit remain. Microsoft is planning to lay off more than 6,000 workers and also announce another round of layoffs, with some analysts pointing to AI as a potential replacement for software engineers and developers.

Conclusion

As we head into the latter part of the week, the potential shift in Fed leadership may continue to stir speculation. While some tech and AI stocks may continue to shine, caution remains warranted due to lingering uncertainty around tariffs and concerns about inflation. 

Within the shorter-term span, economic indicators, including GDP and PCE data, may inform trading decisions. However, the interplay between job market developments, geopolitics, and Treasury yields will likely shape trading moving forward, all of which are crucial to keep a close eye on.

*Past performance does not indicate future results