Nasdaq 100 Set for Record as Yields Fall on Powell: Markets Wrap

(Bloomberg) — Wall Street bulls drove stocks higher amid easing Middle East tensions and balanced comments from Federal Reserve Chair Jerome Powell on the prospects for rate cuts. Treasury yields and the dollar fell. Oil sank.

The S&P 500 rose 1.3% and the Nasdaq 100 climbed 1.6%, set for its first record since February. West Texas Intermediate crude plunged by nearly 15% over two sessions to settle near $64 a barrel. Two-year yields slipped toward their lowest since early May. Money markets fully priced in two Fed cuts by the end of 2025, with odds of a July move around 20% from roughly zero a week ago. Those bets also grew amid a drop in consumer confidence.

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“If it turns out that inflation pressures do remain contained, then we will get to a place where we cut rates, sooner rather than later,” Powell told lawmakers in response to a question about the possibility of a July move. “But I wouldn’t want to point to a particular meeting. I don’t think we need to be in any rush because the economy is still strong.”

To Andrew Brenner at NatAlliance Securities, Powell was unable to “convince markets of hawkishness.”

“The markets are telling Powell that he will be lowering rates much more quickly than he portrayed today,” Brenner noted. “We just don’t know about July. We would need a weak payroll report. Ignore inflation for now.”

Traders continued to keep a very close eye on Middle East developments. Israel and Iran appeared to be honoring a ceasefire agreement unexpectedly announced by US President Donald Trump overnight, after the American leader reacted angrily to early breaches of the deal by both sides.

“Markets are finally breathing again,” said Haris Khurshid, chief investment officer at Karobaar Capital. “The easing in Middle East tensions, paired with Powell striking a more flexible tone, is giving equities room to run and volatility a much-needed pause.”

Powell’s remarks before the House Financial Services Committee came on the heels of the Fed’s decision last week to stay on hold. He reiterated his view that policymakers need not rush to adjust policy, a counter to Trump’s demands and recent statements from Fed Governors Christopher Waller and Michelle Bowman that signaled the two would be open to lowering rates as soon as July. 

At Evercore, Krishna Guha says a “balanced Powell” kept the focus on a September, not a July move.

“For us, the most interesting takeaway was his comment that ‘a couple of cuts or maybe more’ would put the Fed back at neutral,” Guha said. “The sense that policy is only ‘modestly’ restrictive helps justify holding here while the Fed learns more on the tariff impact on both inflation and employment.”

Fed Bank of Minneapolis President Neel Kashkari said officials more clarity on how tariffs will impact prices even as recent inflation data has been “quite positive.” His New York counterpart John Williams said it’s “entirely appropriate” to hold rates to analyze impacts of policy changes. Fed Bank of Cleveland chief Beth Hammack said policymakers may hold borrowing costs steady for some time. Boston Fed President Susan M. Collins said the modestly restrictive stance is necessary.

Powell also said potential changes to a key capital buffer should bolster banks’ roles as intermediaries in the Treasury market.

Meantime, Bill Gross has bad news for Treasury bulls, and good news for stock investors. 

The billionaire investor warned that the 10-year Treasury yield will struggle to dip below 4.25% as ballooning fiscal deficits and a weaker dollar conspire to keep inflation elevated. On the flipside, according to Gross, equity markets are likely to continue to grind higher driven by the sheer power of the artificial-intelligence era.

“I suggest a ‘little bull market’ for stocks and a ‘little bear market’ for bonds,” the co-founder of Pacific Investment Management Co. wrote in an X post on Tuesday. “Stocks are AI dominated and continue to suggest 1-2% economic growth.” 

The risks facing the stock market are swiftly diminishing as economic growth remains solid despite the turmoil from tariffs and geopolitics. Equities have been remarkably resilient over the past two months as the S&P 500 bounced sharply from April lows, putting it about 1% away from its record high.

“It’s dangerous for investors to overreact on such events which typically turn out to be entry points rather than lasting selloffs,” Barclays Plc strategist Emmanuel Cau said. “This could actually end up as a bullish factor for stocks over the medium term.”

Oil plunged for the second straight day as Trump signaled he wants to keep oil flowing out of Iran after brokering a fragile ceasefire between Tehran and Israel.

Prices have slumped amid the significant deescalation of a conflict that has rocked the energy-rich Middle East. Trump said in a social media post that China can continue buying Iranian oil and that he hopes the country will also be purchasing “plenty” from the US. Crude fell further as both sides made deescalatory remarks. 

“A lot can happen obviously still happen with this war, so nobody is going to send up a ‘Mission Accomplished’ signal,” said Matt Maley at Miller Tabak. “However, the risks involved with this conflict have certainly fallen meaningfully over the past few days.”

Having said that, Maley says the risk/reward equation is still skewed heavily towards the risk side.

“The stock market is still very expensive at a time where the level growth in the US economy is falling and earnings estimates are falling,” Maley said. “Investors should be careful about assuming that this good news on the geopolitical front is something that will cause the market to rally substantially higher.”

Corporate Highlights:

• Microsoft Corp. will conduct another round of major layoffs in its Xbox division next week as part of a company-wide reorganization.
• McDonald’s Corp. and Krispy Kreme Inc. are ending their partnership after a little more than a year, with the doughnut chain citing cost issues.
• Cathie Wood is trimming her portfolio after scoring big with her latest bold bet: Circle Internet Group Inc., the stablecoin firm that has seen its shares surge by triple digits since its debut as a public company.
• Uber Technologies Inc. will begin offering its customers driverless Waymo rides in Atlanta, making it the second market, after Austin, where the two companies are teaming up instead of competing against each other.
• Lyft Inc. was raised to buy at TD Cowen, which cited multiple growth levers.
• Target Corp. is testing the delivery of products directly to customers’ homes from factories, said people familiar with the matter, an effort by the big-box retailer to launch a service similar to the Chinese e-commerce platforms Temu and Shein.
• Starbucks Corp. said it’s not currently considering a full sale of its China business, disputing a report from Caixin Global, as the coffee giant battles cheaper local rivals in its second-biggest market.
• Chip design company Ambarella Inc. is considering options including a potential sale, according to people familiar with the matter.
• BBVA SA’s €14 billion ($16 billion) bid for rival Banco Sabadell SA suffered a major setback after the Spanish government said the two lenders wouldn’t be allowed to integrate their operations for several years.
• Novo Nordisk A/S is hunting for more early-stage deals to pad its pipeline of next-generation obesity drugs, as the drugmaker struggles to fend off rivals in the burgeoning weight-loss market it helped pioneer.

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1.3% as of 3:33 p.m. New York time
• The Nasdaq 100 rose 1.6%
• The Dow Jones Industrial Average rose 1.3%
• The MSCI World Index rose 1.4%
• Bloomberg Magnificent 7 Total Return Index rose 1%
• The Russell 2000 Index rose 1.5%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%
• The euro rose 0.4% to $1.1620
• The British pound rose 0.8% to $1.3628
• The Japanese yen rose 1% to 144.71 per dollar

Cryptocurrencies

• Bitcoin rose 1.8% to $105,644.25
• Ether rose 3.8% to $2,437.32

Bonds

• The yield on 10-year Treasuries declined six basis points to 4.29%
• Germany’s 10-year yield advanced four basis points to 2.54%
• Britain’s 10-year yield declined two basis points to 4.47%

Commodities

• West Texas Intermediate crude fell 5.4% to $64.82 a barrel
• Spot gold fell 1.4% to $3,320.64 an ounce

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