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

(Bloomberg) — Wall Street bulls drove stocks closer to their all-time highs amid easing Middle East tensions and constructive comments from Federal Reserve Chair Jerome Powell on the prospects for interest-rate cuts ahead. Bond yields and the dollar fell. Oil plunged.

The S&P 500 rose 1% and the Nasdaq 100 climbed 1.5%, set for its first record since February. Should inflation come in weaker than expected or the labor market deteriorate, Powell said, the Fed could ease sooner. 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 near 20% from roughly zero a week ago. Those bets also grew amid a drop in consumer confidence. Despite the bond rally, a $69 billion US auction was reasonably smooth.

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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 said 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.”

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 the central bank is in no rush to cut rates as officials await clarity on the impacts of tariffs. Fed Governors Christopher Waller and Michelle Bowman have recently argued the Fed could ease policy as early as July.

“Investors and consumers remain cautious but hopeful as they turn their attention to the second half of the year,” said Bret Kenwell at eToro. “While US stocks are near record highs, the focus will soon shift to earnings season and the Fed’s next meeting in late July.”

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

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.

“Stocks are moving higher on news of a ceasefire between Iran and Israel and the idea that this will remain a short-lived war, rather than a long and drawn out conflict,” said Chris Brigati at SWBC. “This de-escalation is leading investors to be more comfortable engaging in risk-on trades in the equity market.”

Trump announced the ceasefire late Monday, less than 48 hours after the US entered the conflict directly with attacks on the Islamic Republic’s nuclear facilities. That followed a well-telegraphed attack by Iran on a US air base in Qatar that was widely viewed as de-escalatory.

“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.”

‘Little Bull Market’

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, even if the Treasury market – or economic growth for that matter – fails to inspire.

“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.”

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.
• 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.
• 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% as of 1:24 p.m. New York time
• The Nasdaq 100 rose 1.5%
• The Dow Jones Industrial Average rose 1.1%
• The MSCI World Index rose 1.3%
• Bloomberg Magnificent 7 Total Return Index rose 1%
• The Russell 2000 Index rose 1.1%

Currencies

• The Bloomberg Dollar Spot Index fell 0.6%
• The euro rose 0.4% to $1.1628
• The British pound rose 0.8% to $1.3633
• The Japanese yen rose 1.1% to 144.61 per dollar

Cryptocurrencies

• Bitcoin rose 1.9% to $105,775.45
• Ether rose 4.4% to $2,451.9

Bonds

• The yield on 10-year Treasuries declined five 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 5.8% to $64.56 a barrel
• Spot gold fell 1.4% to $3,320.17 an ounce

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