Rate Cut Hopes Boost S&P 500 and Nasdaq to New Record Highs

Alexander Garcia
03 Jul, 2024
Miami

Benchmark indexes advanced to new highs in a shortened session as investors overlooked softer economic data. 

Benchmark indexes flatlined earlier in the session, and the S&P 500 index and the Nasdaq Composite advanced to new record highs in the final hour of trading. 

Two widely followed market indexes closed at new highs as investors bid up mega-cap tech stocks after the service sector index unexpectedly contracted in June, strengthening the case for a rate cut later in the year. 

Market sentiment was also bolstered after the latest weekly jobless claims rose for the ninth week in a row and private payroll growth slowed in June. 

The service sector index eased to 48.8 from 53.8 in May, contracting at the sharpest rate since April 2020, according to the Institute for Supply Management. 

Any reading below 50 indicates a contraction, and the sharp decline in business activity was driven by a fall in new orders and employment at the fastest pace in three months. 

Earlier in the week, market participants were worried that the nine-weeklong market gain was based on a narrow list of stocks. 

Moreover, investors were also concerned that high valuations may not be sustainable in the second half if corporate earnings fail to meet investor expectations. 

Initial jobless claims in the previous week rose more than expected, from 4,000 to 238,000, and continuing claims increased by 26,000 to 1.858 million in the earlier week, the U.S. Department of Labor said in its weekly update on Wednesday. 

The New York Stock Exchange closed at 1:00 p.m. ET, and the exchange and other financial markets are closed on Thursday to celebrate Independence Day. 

 

U.S. Trade Deficit Widened In May to an 18-month High

International goods and services trade deficit widened to $75.1 billion in May, the U.S. Bureau of Economic Analysis reported Wednesday. 

Trade deficit widened to the largest level since October 2022 after exports fell more than imports in the month. 

Exports decreased 0.7% to $261.7 billion and imports fell 0.3% to $336.7 billion, resulting in a trade deficit of $75.1 billion.  

Deficit with China in May increased to $24 billion from $20.1 billion in the previous month, widened with Mexico to $14.8 billion from $13.7 billion, and narrowed with the European Union to $22.7 billion from $25.9 billion. 

 

Private Payroll Growth Slows in June

Private payrolls expanded by 150,000 in June, lower than market expectations and the lowest since January, a report by ADP showed on Wednesday. 

The payroll increase slowed from the upwardly revised 157,000 in May. 

The service sector added 136,000 jobs, and the goods-producing sector created 14,000 jobs. 

The leisure and hospitality sector added 63,000, professional and business services 25,000, trade, transportation, and utilities 15,000, and financial services 11,000. 

Meanwhile, information services providers cut jobs by 3,000. 

In the goods-producing sector, construction added 27,000 jobs, but natural resources and mining shed 8,000 and manufacturing cut 5,000 jobs, respectively. 

"Job growth has been solid but not broad-based. Had it not been for a rebound in hiring in leisure and hospitality, June would have been a downbeat month," said Nela Richardson, chief economist at ADP. 

 

U.S. Indexes and Treasury Yields

The S&P 500 index increased 0.5% to 5,537.62, and the Nasdaq Composite rose 0.9% to 18,184.90. 

The yield on 2-year Treasury notes edged lower to 4.70%, 10-year Treasury notes decreased to 4.35%, and 30-year Treasury bonds edged higher to 4.52%.

WTI crude oil increased $0.13 to $82.93 a barrel, and natural gas prices fell 0.1 cents to $2.43 a thermal unit.

Gold decreased by $15.81 to $2,345.98 an ounce, and silver rose 71 cents to $30.28. 

The dollar index, which weighs the U.S. currency against a basket of foreign currencies, edged lower to 105.62.

 

U.S. Stock Movers

Constellation Brands gained 2.8% to $266.24, and the alcoholic beverage distributor reported better-than-expected quarterly results. 

Tesla Inc. advanced 2.4% to $236.02 and extended the previous session's gain of 10%. 

On Tuesday, Tesla said it sold 443,956 vehicles in the June quarter, 4.8% lower than a year ago, which helped with incentives and price cuts. 

Paramount Global jumped 13.5% to $12.13 after media reports suggested that Skydance Media had reached a preliminary agreement to acquire the controlling shareholder, National Amusements. 

The news of the deal was first reported by The New York Times and the Wall Street Journal. 

 

European Markets Rebound. Eurozone Producer Price Deflation Extends to 13th Month

European markets rebounded, the euro held firm, and bond yields in the currency union edged higher as focus shifted to elections. 

Benchmark indexes in Paris soared 1.5%, in London advanced 0.6%, and in Frankfurt gained 1% as investors debated the future rate path and awaited the release of corporate earnings. 

The Labour Party is likely to win as many as 484 seats in the parliamentary election scheduled for July 4, according to the latest poll released by Survation. 

The Conservative Party is estimated to garner only 64 seats, barely reaching the minimum seats needed to be an official opposition party. 

In France, President Emmanuel's coalition struck a deal with the newly formed Popular Front to prevent the National Rally Party from winning majority seats in the second round of parliamentary elections on July 7. 

About 200 candidates withdrew after the far-left party and President Macron's Renaissance party united. 

On the economic front, producer prices in the eurozone declined 4.2% from a year ago in May, Eurostat, the statistical agency of the currency union, reported Wednesday. 

Producer prices declined, slowed from the 5.7% fall in April, and marked the 13th consecutive month of annual deflation. 

Energy prices declined 11.4% from a year ago, and intermediate goods fell 2.9%. 

Excluding energy, producer prices fell 0.4%, less than a 0.9% decline in April. 

On a monthly basis, producer prices in the eurozone fell 0.2% following the 1% decline in April and extended the decline for the seventh month in a row. 

 

Europe Indexes and Yields

The DAX index increased by 1.2% to 18,374.53; the CAC-40 index rose by 1.2% to 7,632.08; and the FTSE 100 index rose by 0.6% to 8,171.12. 

The yield on 10-year German bonds edged lower to 2.59%; French bonds inched lower to 3.24%; the UK gilts inched lower to 4.23%; and Italian bonds decreased to 4.03%.

The euro edged lower to $1.07; the British pound inched higher to $1.27; and the U.S. dollar weakened to 90.28 Swiss cents.

Brent crude increased $0.32 to $86.55 a barrel, and the Dutch TTF natural gas fell by €0.27 to €32.14 per MWh.

 

Europe Stock Movers

Skanska AB increased by 0.7% to SEK 187.20 after the Swedish company won a $97 million construction order. 

Bpost SA decreased 6.4% to €2.94 after the Belgian postal company's annual profit outlook fell short of market expectations. 

Topps Tiles decreased 2.8% to 39.60 pence after the retailer said sales declined in the fiscal third quarter. 

Johnson Matthey rose 3.2% to 1,628.0 pence after the engineering and specialty chemical company launched a stock buyback plan. 

Airbus SE rose 2.6% to €135.34 after the French aerospace company received an order from the discount air carrier Cebu Air. 

The order for up to 152 A321 Neo aircraft is estimated to total $24 billion based on the list price of the plane. 

Higher copper prices lifted resource stocks in London trading. 

Glencore PLC jumped 1.8% to 474.45 pence, Antofagasta advanced 2% to 2,125.0 pence, and Anglo American gained 0.1% to 2,397.0 pence. 

 

Nikkei Extended Rally to Fourth Day, Japan's Service Sector Contracted

Investors bid up stocks in Tokyo and overlooked the latest update on the service sector. 

The Nikkei 225 and the Topix indexes jumped following the gains in overnight trading in New York that pushed the S&P 500 index and the Nasdaq Composite to new record highs. 

Tech stocks led the gainers amid optimism about earnings, and mega-cap stocks in the sector led the market's advance. 

The yen drifted to a new 38-year low of 161.85 against the U.S. dollar as the Bank of Japan's policymakers struggled to devise a plan to shrink the yield gap between the U.S. and Japan. 

The au Jibun Bank Japan Services PMI for June was revised down to 49.4 from the preliminary estimate of 49.8, S&P Global reported Wednesday. 

The service sector activity contracted for the first time since August 2022, after all sub-sectors excluding information and communication shrank in the month. 

The index reversed from 53.8 in May. 

The input costs in the service sector rose to a 10-month high, but the prices charged to customers rose at the slowest pace since November 2023. 

Market indexes in Tokyo have faced selling pressure in the second quarter as foreign investors lighten positions and look elsewhere in the region to China and India. 

Despite the gains in the Nikkei 225 index over the last four days, investors are cautious because of the lack of progress on corporate governance reform and interest rate uncertainty. 

Moreover, the Bank of Japan is set to reduce its Japanese government bond buying as early as next month. 

 

Japan Stock Movers 

The Nikkei 225 stock average increased 1.2% to 40,567.79, and the Topix index added 0.4% to 2,868.18. 

Retail stocks were in focus after the yen hovered at a 38-year low, and the upsurge in foreign tourists from China, the U.S., and South Korea is expected to boost revenue this summer. 

The number of U.S. tourists visiting Japan by air rose 17.4% to 900,000 in the first five months to May 2024, according to the data released by the International Trade Administration. 

The U.S. arrivals soared 35.5% from the previous pre-pandemic peak in 2019, after Japan ended its travel restrictions and dropped to a multi-decade low. 

Fast Retailing jumped 1.8% to ¥42,120.0, J. Front Retailing gained 0.4% to ¥1,910.50, Takashimaya declined 0.3% to ¥2,943.50, and Seven & I Holdings advanced 0.2% to ¥1,977.50. 

Tech stocks were among the leading gainers following the rise in the sector in overnight trading in New York. 

Tokyo Electron, Advantest, Screen Holdings, and Disco Corp. advanced between 1.5% and 3.0%. 

Exporters fell despite the yen's weakness. 

Panasonic, Canon, and Sony declined more than 1%, but Mitsubishi Electric advanced 1%. 

TDK, Chugai Pharma, IHI, Murata Manufacturing, and Mitsubishi Heavy Industries gained between 3% and 5%. 

However, NTT Data, Yokohama Rubber, and Chiba Bank declined more than 3%. 

 

Hong Kong Rally Extends to Third Day, China Service Growth Drops 

Investors battled mixed emotions, and market indexes diverged in Hong Kong and Shanghai. 

Benchmark indexes in Hong Kong gained for the third consecutive day in a row as mainland investors added exposure to dividend-paying stocks. 

Tech stocks led the market gainers after Alibaba said it completed its $5 billion stock repurchase plan in the last quarter. 

Market enthusiasm was capped after the service sector growth rate dropped to an 8-month low. 

The Caixin China service purchasing managers' index eased to 51.2 in June from 54.0 in May, S&P Global reported Wednesday. 

China's services sector is one of the few bright spots in the economy, as the manufacturing sector struggles amid weak domestic demand and the construction sector continues to shrink after weak consumer confidence. 

 

China Stock Movers 

The Hang Seng index increased 1.4% to 17,978.52, and the CSI 300 index decreased 0.3% to 3,466.80. 

Alibaba Group jumped 2.9% to HK $72.50, Meituan added 2.4% to HK $115.50, and Baidu jumped 3.2% to HK $86.55. 

Electric vehicle makers were focused on the expectation that domestic and export sales would continue to advance despite the rising tensions with the US and the European Union. 

On Tuesday, Tesla said it sold 443,956 vehicles in the June quarter, 4.8% lower than a year ago, which helped with incentives and price cuts. 

BYD increased 0.5% to HK $229.40, Li Auto soared 5% to HK $77.55, and Xpeng gained 2% to HK $30.45. 

Three new companies listed their shares on the stock exchanges in Hong Kong and Shanghai. 

Shanghai Ananda Drive Techniques soared to 44.20 yuan after the driving equipment maker priced its initial public offering at 20.56 per share and raised 596 million yuan. 

Zhonggan Communication Group plunged 37% to 79 HK cents, and the company priced its initial public offering price at HK 1.25 per share. 

Xi'an Kingfar Property Services dropped 15% to HK $6.45, and the company priced its initial public offering at HK $7.50 per share and raised HK $125 million.