Despite typical summer volatility, the Dow Jones Industrial Average closed at an all-time high on Monday following remarks by Federal Reserve Chair Jerome Powell that policymakers won't wait for inflation to fall to 2% before reducing interest rates. The Nasdaq Composite and S&P 500 also saw gains, with energy and financial sectors leading the rally
Despite typical summer volatility, the Dow Jones Industrial Average closed at an all-time high on Monday following remarks by Federal Reserve Chair Jerome Powell that policymakers won't wait for inflation to fall to 2% before reducing interest rates. The Nasdaq Composite and S&P 500 also saw gains, with energy and financial sectors leading the rally while utilities declined. Powell emphasised the need for "greater confidence" that inflation will return to the 2% level before lowering rates, sparking optimism for a potential interest rate cut. Communications by Federal Reserve officials around a possible interest rate cut in September are expected to intensify this week, especially following a significant decline in shelter cost growth for June. Despite recent improvements, analysts warn that US inflation remains "uneven and bumpy," suggesting that two months of favourable data are insufficient to justify a policy change. Mixed but mostly positive economic news, including less-than-expected contraction in New York manufacturing activity, boosted the market.
Key Takeaways:
Dow Jones Reaches New Record High: The Dow Jones Industrial Average jumped 210.82 points, or 0.53%, to close at an all-time high of 40,211.72. This surge was driven by increased investor confidence following the unsuccessful assassination attempt on former President Donald Trump, which is seen as potentially boosting his chances in the upcoming presidential election.
S&P 500 and Nasdaq Composite Hit Intraday Highs: The S&P 500 added 0.28%, closing at 5,631.22, while the Nasdaq Composite rose by 0.4% to finish at 18,472.57. Both indices achieved new intraday highs during the session, reflecting broad-based gains across the market. This performance highlights investor enthusiasm in response to positive economic signals.
Small-Cap and Bank Stocks Lead Gains: The Russell 2000 index gained more than 1%, reaching its highest level since 2022 and recording a fourth straight positive day. Small-cap stocks and banks led the market rally, with Goldman Sachs shares increasing by over 2% after posting earnings that exceeded analysts' expectations. The SPDR S&P Bank ETF (KBE) and SPDR S&P Regional Banking ETF (KRE) both rose more than 2%, indicating financial sector's resilience and growth prospects.
European Markets Decline Amid Global Uncertainty: The pan-European Stoxx 600 closed 1% lower, with all sectors and major bourses in the red as global markets. Household goods led the losses, down 2%, followed by utilities, which lost 1.9%. Significant declines were observed in Burberry (-16%) after a disappointing first-quarter performance led to a CEO replacement and dividend cut, Swatch Group (-9.8%) amid a slowdown in China sales, and Ocado (-10.4%) after a downgrade. TomTom also dropped 8.4% after suspending its revenue target for 2025. The FTSE 100 Index was down 69.95 points while the CAC 40 Index decreased 95 points or 1.22%.
Asian Markets React to Economic Data: China’s GDP growth for the second quarter came in at 4.7%, missing expectations of 5.1% and lower than the 5.3% growth in the first quarter. Hong Kong’s Hang Seng index fell 1.73%, led by declines in consumer stocks, while mainland China’s CSI 300 edged up 0.11%. Despite the overall negative sentiment, Australia’s S&P/ASX 200 hit an all-time high, closing up 0.73% at 8,017.6, driven by strong performance in its domestic market.
Oil Prices Fall on Chinese Demand Concerns: Crude oil prices faced pressure due to weak economic news from China, the world’s second-largest crude consumer. Brent crude futures fell by 0.16%, while US West Texas Intermediate crude decreased by 0.3% to $81.96 a barrel.
FX Today:
XAU/USD Gains Boosted by Dovish Fed Bets: Gold prices climbed 0.51% to $2,422, remaining above the $2,400 mark. Despite posting gains, gold failed to stay near its daily high of $2,439. The momentum is bullish, though near-term signals suggest buyers might be taking a breather, with the Relative Strength Index (RSI) standing flat but bullish. If XAU/USD edges above $2,439, it could test the year-to-date (YTD) high of $2,450, with further gains aiming for $2,500. On the downside, a slump below $2,400 would bring the July 5 high of $2,392 into focus, with potential to continue down to $2,350.
GBP/USD Surges, Approaching 1.3000: The GBP/USD pair trades at 1.2968, down 0.24%, yet approaching the significant 1.3000 level. Following a three-day advance last week, the pair is near a 12-month high, just shy of the July 27, 2023, high of 1.2995. Bullish momentum persists, though the pair is overbought. Resistance is expected at 1.2995-1.3000, with subsequent targets at 1.3040 and 1.3125. Conversely, a reversal would need to push below 1.2900, with support at 1.2860 and 1.2780.
USD/JPY Struggles Below 158.00 After Intervention: The USD/JPY pair saw minimal losses of 0.02%, trading at 157.94, below the 158.00 mark, after last week’s intervention pulled the pair from around 161.90 to 157.50. The path of least resistance remains downward, with support at 157.14. If breached, the next support is at 156.90, potentially pushing the exchange rate below 155.60. On the upside, climbing past 158.00 and extending above the high of 159.45 would set the stage for a challenge of 160.00.
Canadian Dollar Struggles on Pessimistic BoC Outlook: The Canadian Dollar (CAD) flattened on Monday, declining against all major peers. The CAD fell 0.4% against the Japanese Yen (JPY) and Swiss Franc (CHF), and 0.2% against the US Dollar (USD). USD/CAD rallied to a fresh eight-day high, jumping above 1.3660 after bouncing from the 200-day Exponential Moving Average (EMA) at 1.3590. Near-term consolidation is likely as bids challenge the 50-day EMA at 1.3666, with potential bullish extensions stalling above 1.3700.
NZD/USD Bulls Struggle with 20-day SMA Resistance: In Monday's session, the NZD/USD declined by 0.60% to 0.6080. Bulls face resistance at 0.6100 near the 20-day SMA, with further barriers at 0.6150 and 0.6200. A convincing close above these levels is needed to reinforce bullish control and steer focus northwards. Conversely, the 0.6070 mark acts as staunch support, followed by 0.6050 and 0.6030. A decisive break below these levels would shift the perspective to bearish, potentially paving the way for further corrections to lower levels.
Market Movers:
Apple (AAPL) Hits Record High: Apple shares closed up more than 1%, reaching a record high after Morgan Stanley named the stock as a “top pick” with a price target of $273. The tech giant's strong performance underscores its continued dominance and investor confidence in its future growth prospects.
Cryptocurrency-Related Stocks Rally: Following Bitcoin's surge of more than 10% to a four-week high on expectations of favourable political conditions, stocks like Coinbase Global (COIN), Marathon Digital Holdings (MARA), MicroStrategy (MSTR), and Riot Platforms (RIOT) closed up more than 11%. The cryptocurrency market's positive momentum boosted these related equities significantly.
Goldman Sachs (GS) Exceeds Earnings Expectations: Goldman Sachs shares rose more than 2% after the company reported Q2 net revenue of $12.73 billion, surpassing the consensus estimate of $12.39 billion. This strong financial performance highlights Goldman Sachs' resilience and profitability in the current economic climate.
KKR & Co (KKR) Upgraded by Citigroup: Shares of KKR & Co closed up more than 2% after Citigroup raised its price target on the stock to $130 from $115. The upgrade reflects positive sentiment towards the company's growth potential and strategic positioning.
Defensive Utility Stocks Decline: Utility stocks fell as the S&P 500 climbed to a new record high. AES Corp (AES) led the declines, closing down more than 10%, followed by CenterPoint Energy (CNP) down more than 6%, and NRG Energy (NRG) down more than 5%. Additional declines were seen in PG&E Corp (PCG), Edison International (EIX), and Consolidated Edison (ED), each closing down more than 2%.
Macy’s (M) Drops on Terminated Buyout Discussions: Macy’s shares plummeted more than 11% after the company ended buyout discussions with Arkhouse Management and Brigade Capital Management. The termination of these discussions has raised concerns about Macy’s strategic direction and future prospects.
Ulta Beauty (ULTA) Falls on Removal from Top Pick List: Ulta Beauty shares closed down 4% after Oppenheimer removed the stock from its “top pick” list, citing “aggressive” promotions over the past weeks that suggest ongoing challenges and potential risks to fiscal year 2024 guidance.
Davita (DVA) Under Federal Investigation: Davita shares dropped more than 3% following a report by Politico that the US Federal Trade Commission is probing the company over allegations of making it difficult for physicians to leave for rivals and start new businesses. The investigation has heightened regulatory concerns for the company.
Trump Media & Technology Group (DJT) Surges: Shares of Trump Media & Technology Group soared more than 31% after the failed assassination attempt on Donald Trump over the weekend, which is perceived to have potentially increased his chances of becoming president. This significant gain reflects investor sentiment on the company's future prospects under a possible second Trump administration.
As markets digest the recent political developments and economic data, the surge in the Dow Jones to a record high reflects the prevailing investor optimism. The positive momentum in the S&P 500 and Nasdaq Composite, alongside strong performances in small-cap stocks and banks, underscores a broader market rally fuelled by favourable fiscal expectations and encouraging remarks from the Federal Reserve. Despite the mixed reactions in European and Asian markets, the overall sentiment remains optimistic. As the week unfolds, market participants remain watchful, balancing opportunities against ongoing uncertainties.
