Most U.S. stocks experienced declines, but anticipation of interest rate cuts and Wall Street’s excitement over artificial-intelligence technology pushed indexes to new record levels. The S&P 500 saw a 0.2% increase on Thursday, surpassing the previous day’s all-time high. The Nasdaq composite also reached a new record with a 0.3% climb. Meanwhile, the Dow Jones Industrial Average dropped by 0.2%. Chipmaker Broadcom saw a significant increase of 12.3%. In the bond market, Treasury yields decreased as confidence grew that inflation was slowing down enough to prompt the Federal Reserve to cut interest rates later in the year.
THIS IS A BREAKING NEWS UPDATE. AP’s earlier story follows below.
Despite most U.S. stocks slipping on Thursday, hopes for future interest rate cuts and the ongoing excitement around artificial-intelligence technology helped keep indexes near their record highs.
The S&P 500 inched up by 0.1% in afternoon trading, reaching the all-time high set the previous day. The Nasdaq composite also rose by 0.3% to a new record, while the Dow Jones Industrial Average saw a decline of 81 points, or 0.2%, by 2:30 p.m. Eastern time.
With Treasury yields showing a decrease in the bond market, there is growing confidence that inflation is slowing down enough to warrant interest rate cuts by the Federal Reserve later in the year.
The latest update on inflation revealed that wholesale prices did not rise as much as economists had predicted. In fact, prices decreased from April to May, contrary to forecasts.
This was followed by a surprising update on inflation from the day before, which indicated that consumer-level inflation was lower than expected. Federal Reserve Chair Jerome Powell described the report as encouraging and emphasized the need for more data before considering a reduction in the main interest rate, which is currently at the highest level in two decades.
“It’s a question of when they cut, not if,” stated Niladri “Neel” Mukherjee, chief investment officer of TIAA Wealth Management.
Higher interest rates have been weighing down some sectors of the economy, particularly in manufacturing. A report on Thursday showed that more U.S. workers filed for unemployment than expected last week, although the numbers remain relatively low historically.
There is hope on Wall Street that continued job market and economic growth will occur at a sustainable pace, alleviating inflationary pressures without causing a severe recession.
Following these reports, companies whose profits are closely tied to economic strength, such as industrial companies and oil-and-gas producers, underperformed in the market on Thursday.
Dave & Buster’s Entertainment saw a 10.5% decline after reporting weaker-than-expected drops in profit and revenue for the latest quarter, attributing it to a “complex macroeconomic environment” among other factors. Other companies have also noted a divide among their customers, with lower-income households struggling to cope with persistently high inflation.
Despite economic pressures, some companies have been able to thrive due to the ongoing interest in artificial-intelligence technology.
Broadcom saw a 12.6% increase after reporting stronger profits for the latest quarter than anticipated, driven by demand for AI technology. The company also raised its revenue forecast for the year.
Broadcom’s stock price has reached nearly $1,700, prompting a pending split of nine shares for every one currently held by investors in an attempt to lower the price and increase accessibility. This move follows a similar decision by Nvidia, which has emerged as a leader in the AI field and now boasts a market value exceeding $3 trillion.
Tesla recorded a 4.1% gain after CEO Elon Musk indicated positive early voting results for the approval of his pay package. Musk had previously threatened to transfer AI research to another one of his companies if the package was not approved.
In the bond market, the yield on the 10-year Treasury fell to 4.24% from 4.32% the previous day and 4.60% last month. The two-year yield, which is more sensitive to Fed expectations, decreased to 4.69% from 4.76%.
Most Federal Reserve officials are considering one or two interest rate cuts this year, with traders hopeful that cuts could begin as early as September, according to data from CME Group. These cuts would alleviate economic pressures and boost various investment prices.
Mukherjee of TIAA expects the U.S. economy to continue slowing down as spending weakens among lower-income households due to diminishing savings. However, he anticipates that the economy will avoid a recession, as spending remains stable among wealthier households benefiting from strong investment portfolios and home values, as well as government and corporate spending.
“To me, the soft landing” for the economy, where inflation decreases without severe economic downturn, “has already been achieved,” Mukherjee stated.
Despite these positive economic indicators, he remains cautious about stock performance for the rest of the year following significant gains. The S&P 500 has already risen nearly 14%, and he highlights potential market volatility around upcoming elections, including the U.S. presidential race.
European markets experienced turbulence after recent elections saw a rise in support for far-right parties in countries like France and Germany. Market volatility also ensued following election results in Mexico and India.
Thursday saw a sharp decline in European stocks as the leaders of the Group of Seven met in Italy. The CAC 40 in France fell by 2% and Germany’s DAX lost 2%.
In Asia, Japan’s Nikkei 225 dropped by 0.4% ahead of an interest rate decision by Japan’s central bank scheduled for Friday. Meanwhile, indexes rose in Seoul and Hong Kong.
AP Business Writers Yuri Kageyama and Matt Ott contributed.
