Stocks rallied on Tuesday following a positive report on the economy, with the S&P 500 jumping 1.7% and the Dow Jones Industrial Average rising 1%. The Nasdaq composite also climbed 2.3%. The report showed that inflation at the wholesale level had slowed more than expected, giving hope that the Federal Reserve may ease up on high interest rates. Treasury yields eased in response to the data, with the yield on the 10-year Treasury falling to 3.84%. Traders are anticipating the Fed’s meeting next month, where the first cut to interest rates since the COVID crash of 2020 is expected.
However, concerns remain as the government is set to release updates on consumer inflation and retail spending in the coming days. There is a growing worry on Wall Street that the Fed may have kept interest rates too high for too long, potentially undercutting the U.S. economy. Despite the overall growth of the economy, a recent slowdown in U.S. hiring has raised questions about its strength. Even if the Fed cuts interest rates, there are doubts whether it will be enough to boost stocks significantly in the event of a recession.
On Tuesday, Home Depot reported stronger profits for the spring quarter but also lowered its full-year forecasts due to high interest rates and economic uncertainty. The company’s stock rose 1.2% after fluctuating between gains and losses. Meanwhile, Starbucks surged 24.5% after announcing that Brian Niccol would take over as chairman and CEO. Niccol, who is leaving his role as CEO of Chipotle Mexican Grill, has a track record of success in the industry. Chipotle’s stock dropped 7.5% following the announcement.
Stock markets abroad saw modest gains, with Japan’s Nikkei 225 jumping 3.4% after recent volatility. Concerns around artificial intelligence technology and over-inflated stock prices, particularly in Big Tech and AI-related companies, have added to Wall Street’s jitters. Nvidia, a key player in AI technology, experienced a sharp decline after a significant rise earlier in the year. Despite the challenges, Nvidia rose 6.5% on Tuesday, leading the S&P 500 higher. The rally was broad-based, with nearly 85% of stocks in the S&P 500 rising and the smaller stocks in the Russell 2000 index also climbing.
Overall, the S&P 500 rose by 90.04 points, the Dow added 408.63 points, and the Nasdaq composite gained 407.00 points. The market response to the positive economic report suggests that investors are optimistic about potential interest rate cuts by the Federal Reserve. However, ongoing concerns about the economy, inflation, and consumer spending continue to weigh on market sentiment. The next few days will provide further insights into the health of the U.S. economy and the potential impact on stock markets both domestically and abroad.
