Summary: This year, FOMC voter Logan stated the reasons for the Federal Reserve to pause the rate hike next month are still unclear. The yield on two-year U.S. bonds increased by more than 10 basis points, hitting a four-week high; the U.S. dollar index continues to reach nearly seven-week highs; the offshore yuan fell below 7.00 for two consecutive days. After Republican leader McCarthy stated that a debt ceiling agreement could be reached as early as this weekend and voted on in the House of Representatives next week, the S&P and Dow Jones turned around. The Nasdaq hit an eight-month high for the third time this week. Netflix, with a disclosed monthly active user base of 5 million for its advertising packages, rose by more than 9%. Nvidia, seen as likely to boost performance due to AI, rose by 5%. Gold hit a seven-week low. Updates in progress.
Despite being hit by hawkish comments from Federal Reserve officials, U.S. stocks on Thursday once again gained support from positive debt ceiling negotiations, rallying without alarm.
Dallas Federal Reserve Chair Lorie Logan, who holds voting rights at this year's Federal Open Market Committee (FOMC) meeting, said that the reasons for pausing the rate hike at the June FOMC meeting are currently unclear. The data in the coming weeks may still indicate that it is appropriate to skip a meeting rate hike, but we are not there yet.
Logan's statement is called her most hawkish statement to date. Also on Thursday, Fed Governor Jefferson, who permanently holds voting rights at the FOMC meeting, said that inflation is too high, and sufficient progress has not been made to reduce inflation, implying that he is willing to patiently observe the lagging impact of previous rate hikes on the economy. After Logan's speech, traders increased the odds of a Fed rate hike next month to about 40%.
After Logan and Jefferson's statements, U.S. Treasury bond prices accelerated their fall, yields rose; the U.S. dollar strengthened further. The yield on the rate-sensitive two-year U.S. bond rose more than 10 basis points during the session, hitting a one-month high, while the yield on the benchmark ten-year U.S. bond hit a two-month high. The U.S. dollar index, staying above 103.00, widened its gains and hit a new high since the end of March, following Wednesday. The offshore yuan against the dollar fell below 7.06 after breaking 7.00 on Wednesday, hitting a new low since last December.
During the U.S. stock market's morning session, Republican leader and Speaker of the House McCarthy said that negotiators might reach a principal agreement on the debt ceiling as early as this weekend, and he expects the agreement to be voted on in the House next week. Commentators say this is McCarthy's most positive statement to date on debt ceiling negotiations. McCarthy's speech drove a wave of U.S. stock market rises in the morning session, with both the S&P and the Dow turning around. With the leadership of tech stocks like Netflix and Nvidia, the Nasdaq continued to hit an eight-month high.
After McCarthy's statement, the S&P and Dow turned around, Netflix rose by more than 9%, chip stocks outperformed the market, and Nvidia rose by 5%. After Federal Reserve officials spoke, the three major U.S. stock indexes opened unevenly, but they all rose during the session. The Nasdaq Composite opened slightly higher and then continued to rise. The Dow Jones Industrial Average and the S&P 500 opened lower, with the Dow falling nearly 134 points, or about 0.4%, in early trading, and the S&P falling more than 0.1%. After McCarthy's statement, both the S&P and the Dow turned around, and the Nasdaq accelerated its rise, with intraday gains expanding to more than 1%.
Near the end of the Dow's morning session, it turned down, falling nearly 209 points, or more than 0.6%, at midday, hitting a daily low, but then turned up in late trading. The Nasdaq and the S&P maintained their gains at midday, and both hit daily highs with the Dow in late trading. In the end, all three major indexes rose for two consecutive days, rallying collectively for the third day this week after Monday and Wednesday.
The Nasdaq closed up 1.51% at 12688.84 points, hitting a new high since August 19 last year, after hitting a new high since August 25 last year on Monday and Wednesday. The S&P closed up 0.94% at 4198.5 points, hitting a new closing high since August 25 last year. The Dow rose 115.14 points, or 0.34%, to 33535.91 points, hitting a new high since May 9.
The small-cap Russell 2000, which is mostly made up of value stocks, closed up 0.58%, rising for two consecutive days and continuing to hit a new high since April 24. The tech-heavy Nasdaq 100 Index closed up 1.81%, rising for four consecutive days and hitting a new high since April last year after hitting a new high since August for three consecutive days.
Among the major sectors of the S&P 500, seven closed up on Thursday, with the IT sector, where chip stocks are located, leading the rise, up nearly 2.1%, the communications services sector, where Netflix is located, up nearly 1.8%, the discretionary consumption sector, where Amazon is located, up more than 1.5%, and energy up nearly 0.5%. Among the four sectors that fell, real estate fell nearly 0.7%, necessities and utilities fell about 0.4%, and healthcare fell more than 0.2%.
Semiconductor stocks as a whole rose for the second consecutive day, outperforming the broader market. The Philadelphia Semiconductor Index closed up 3.2%, hitting a new high since March 31. The semiconductor industry ETF SOXX closed up nearly 3.2%, approaching a high since April of last year. Among the IT sector constituents of the S&P 500, Nvidia's target price was raised by 12.9% to $350 by Susquehanna analysts due to the expected performance boost brought on by the AI trend, causing Nvidia to close up nearly 5%, hitting a new high since November 2021. Susquehanna predicts that Nvidia's quarterly report and guidance to be released next week will show better performance due to companies rushing to capitalize on AI. Micron Technology, after being reported to plan a $3.7 billion investment in Japan to increase DRAM memory production, closed up over 4%.
AI concept stocks did not continue to rally. C3.ai (AI), which surged over 14% on Wednesday, closed down nearly 0.5%, falling from its high since April 3. SoundHound.ai (SOUN), which rose nearly 10% on Wednesday, closed up 6.4%, rising for two consecutive days to a high since April 18. BigBear.ai (BBAI), which fell for two consecutive days to a nearly six-week low on Wednesday, closed up 0.8%.
Bank stocks, which rebounded strongly on Wednesday, continued to rise overall, although regional banks briefly turned down. The KBW Bank Index (BKX) closed up 0.6%, the KBW Nasdaq Regional Banking Index (KRX) closed up 0.06%, and the SPDR S&P Regional Banking ETF (KRE) closed up 0.6%, all hitting new highs since May 1, which were set on Wednesday.
Some big banks fell, with Citigroup down 1.5%, Wells Fargo down 0.6%, Bank of America down nearly 0.4%, Goldman Sachs down nearly 0.2%, while JPMorgan Chase was up nearly 0.8%, Morgan Stanley was up 0.7%, and Capital One, newly added to Berkshire Hathaway's portfolio with a market value of $954 million at the end of the first quarter, closed up 4.8%, rising for four consecutive days to a high since April 19. In addition, asset management giant Charles Schwab (SCHW) fell over 0.1%.
The momentum of regional bank stocks, which surged in the double digits on Wednesday, eased. Pacific Western Bank (PACW), which closed up 21.7% on Wednesday, was up more than 7% intraday. Zions Bancorporation (ZION), which closed up 12.1% on Wednesday, was up more than 2% intraday. Western Alliance Bank (WAL), which closed up 10.2% on Wednesday, was up more than 1% intraday, all on track to set new closing highs since May 1.
Among individual stocks reporting earnings, Walmart (WMT), which posted better-than-expected first-quarter earnings and revenue and raised its full-year guidance, was up more than 3% at the start of trading and closed up 1.3%. Bath & Body Works (BBWI), which posted better-than-expected first-quarter earnings and raised its full-year guidance, closed up 10.7%. Video game company Take-Two Interactive (TTWO), which posted lower-than-expected annual order guidance but better-than-expected fourth-quarter revenue, closed up 11.7%. Software company Synopsys (SNPS), which reported betterthan-expected second-quarter earnings and revenue and raised its full-year growth guidance, closed up 8.7%. Cisco (CSCO), which disclosed better-than-expected third-quarter revenue and earnings but saw more than a 20% year-on-year decline in product orders for the second consecutive quarter, highlighting weak demand, was down 4% at the start of trading, turned positive by midday, and closed up 1.2%. However, Boot Barn Holdings (BOOT), which reported lower-than-expected fourth-quarter revenue and full-year guidance, closed down 10.7%.
In general, popular Chinese concept stocks fell for three consecutive days. The Nasdaq Golden Dragon China Index (HXC) closed down 3.5%. Chinese concept ETFs KWEB and CQQQ fell 4.2% and 1.8%, respectively. After Alibaba announced a 38% year-on-year growth in first-quarter net profit, and revenues below expectations, and plans to spin off businesses like Alibaba Cloud, its shares initially rose nearly 0.4% but quickly fell, dropping more than 6% during the morning session and closing down 5.4%. Among other stocks, Tiger Securities fell more than 11%, Pinduoduo fell more than 7%, Futu Holdings fell more than 6%, Xunlei fell more than 5%, Baidu, JD.com, Xpeng Motors, Dada Nexus fell more than 4%, Tencent Music fell 4%, iQIYI fell more than 3%, NIO and New Oriental fell more than 2%, NetEase and Bilibili fell more than 1%, Ideal Auto and Kingsoft Cloud fell 0.6%.
In European markets, the Pan-European stock index rebounded after falling for two consecutive days. The Stoxx Europe 600 Index broke away from a four-day low. Major European country stock indices rose collectively, with German stocks leading the gains, rising over 1%, hitting a closing high since January of last year, and Spanish stocks rising for two consecutive days. British and French stocks, which had fallen for two consecutive days, and Italian stocks, which had fallen for three consecutive days, also rebounded.
Among the sectors of the Stoxx 600, technology led the rise with gains of over 2.5%, closely followed by the auto sector, up more than 2.4%. Among tech stocks, Dutch-listed photolithography giant ASML rose 5.3%, leading the gains in the blue-chip Stoxx 50 constituents; another semiconductor stock, Infineon, rose nearly 4%, together with Commerzbank, which rose over 4%, and Volkswagen and Daimler, which rose over 3%, helped push German stocks higher.
