In a remarkable display of market optimism, the Nasdaq and S&P 500 marked their fourth consecutive record closing highs on Thursday. Investors were buoyed by cooler-than-expected inflation data, even as U.S. Treasury yields dipped to their lowest levels since early April. The upbeat sentiment was tempered by the Federal Reserve’s tempered rate-cut expectations.
The dollar strengthened against a basket of world currencies, driven by the Fed’s hawkish stance and concerns over a potential Europe-China tariff war, which also sent European stocks plummeting. Conversely, the blue-chip Dow Jones Industrial Average closed modestly lower.
The Labor Department’s recent data showed that producer prices fell by 0.2% in May on a monthly basis, significantly below analysts’ expectations, and increased by 2.2% year-on-year, just above the Fed’s 2% annual inflation target. Additionally, initial jobless claims hit a 10-month high, reinforcing the narrative of a cooling economy.
Following Wednesday’s cooler-than-expected Consumer Price Index (CPI) report and the Fed’s revised dot plot, which reduced the forecast for rate cuts this year from three to one, markets have been cautiously optimistic. “After solid gains, markets are taking a pause after the big news day yesterday, which is not a bad thing,” said Ryan Detrick, Chief Market Strategist at Carson Group in Omaha, Nebraska. “We call this the calm after the storm – we’re consolidating some of the really big gains we’ve seen in the first half of June.”
Despite the Fed’s hawkish revision, there is growing speculation that the U.S. central bank might implement its first rate cut as early as September. According to CME’s FedWatch tool, financial markets now see a 60.5% likelihood of a 25-basis-point reduction in the Fed funds target rate in September. “The Fed might talk a little hawkish, but they’re also data dependent,” Detrick added. “With today’s PPI data also showing improvement, the market is optimistic that the Fed might soften their stance with continued positive inflation data.”
The Dow Jones Industrial Average fell by 65.17 points, or 0.17%, to 38,647.04. Meanwhile, the S&P 500 gained 12.71 points, or 0.23%, closing at 5,433.74, and the Nasdaq Composite added 59.12 points, or 0.34%, ending at 17,667.56.
In Europe, shares closed sharply lower, particularly impacted by auto stocks, as investors worried about Beijing’s response to the European Union’s new tariffs on Chinese electric vehicles. The pan-European STOXX 600 index fell by 1.31%, while MSCI’s global gauge of stocks dropped by 0.27%.
Emerging market stocks rose by 0.64%, with MSCI’s broadest index of Asia-Pacific shares outside Japan increasing by 0.67%. However, Japan’s Nikkei fell by 0.40%.
U.S. Treasury yields declined following the soft economic data, with 10-year notes rising 13/32 in price to yield 4.2442%, down from 4.295% late Wednesday. The 30-year bond saw a rise of 27/32 in price, yielding 4.4%, down from 4.45% the previous day.
The dollar index increased by 0.53%, with the euro dropping by 0.64% to $1.0738. The Japanese yen weakened by 0.22% to 157.09 per dollar, while the British pound last traded at $1.2761, down by 0.27%.
Oil prices saw modest gains amid a day of fluctuating trade, with U.S. crude rising by 0.15% to settle at $78.62 per barrel, and Brent increasing by 0.18% to settle at $82.75 per barrel. Meanwhile, gold prices dropped in response to the stronger dollar, falling by 0.8% to $2,303.15 an ounce.
As investors navigate these mixed economic signals, the focus remains on how ongoing data will influence Federal Reserve policies and broader market dynamics in the coming months.