US Stock Indices Rise as Fed Rate Cut Speculation Grows

The S&P 500 Index ($SPX) (SPY) closed up +0.41% on Thursday, while the Dow Jones Industrials Index ($DOWI) (DIA) rose +0.65%, and the Nasdaq 100 Index ($IUXX) (QQQ) increased by +0.08%. June E-mini S&P futures (ESM25) are up +0.48%, and June E-mini Nasdaq futures (NQM25) are up +0.09%.

On Thursday, stock indexes ended the day higher. The S&P 500 reached a 2-1/4 month high, and the Nasdaq 100 hit a 2-1/2 month high. Broad market support stemmed from expectations for Fed rate cuts, as the Treasury note yield fell following a weaker-than-expected U.S. April PPI report and the largest decline in six months for April manufacturing production. Additionally, US economic news indicated weekly initial unemployment claims remained unchanged, while April retail sales showed a stronger-than-expected increase, alleviating recession fears.

However, chip stocks, which had surged earlier in the week, saw some losses on Thursday, limiting overall market gains. Comments from Fed Chair Powell were neutral for stocks, as he reaffirmed the Fed’s commitment to a 2% inflation target.

US weekly initial unemployment claims held steady at 229,000, close to the expected 228,000. The April final-demand PPI report showed a -0.5% month-over-month change and +2.4% year-over-year, which was below expectations of +0.2% and +2.5% respectively.

Retail sales for April rose +0.1% month-over-month, surpassing expectations of no change. However, retail sales excluding autos only increased by +0.1%, missing the +0.3% forecast.

The US May Empire manufacturing survey’s general business conditions index unexpectedly fell by -1.1 to -9.2, deviating from expectations for an increase to -8.0. Conversely, the May Philadelphia Fed business outlook survey showed a stronger rise in the general conditions index, increasing by +22.4 to -4.0, exceeding expectations of -11.0. April manufacturing production decreased -0.4% month-over-month, in contrast to expectations of a -0.3% decline, marking the biggest drop in six months. Also, the US May NAHB housing market index unexpectedly fell -6 to a 1-1/2 year low of 34, softer than projections for no change at 40.

Fed Chair Powell indicated that policymakers are reassessing their monetary policy framework, especially regarding employment shortfalls and their approach to inflation targets. He emphasized the critical nature of anchored inflation expectations as the Fed remains devoted to its 2% goal.

This week, markets are focusing on tariff developments and potential trade deals. On Friday, April housing starts are projected to rise by +2.9% month-over-month to 1.363 million, while building permits are expected to decline -1.2% to 1.450 million. Also on Friday, the preliminary May University of Michigan consumer sentiment index is forecasted to increase by +1.2 points to 53.4.

Current market speculations assign an 8% chance for a -25 basis point rate cut at the upcoming FOMC meeting on June 17-18. The Q1 earnings season is drawing to a close; thus far, over 80% of S&P 500 companies have reported quarterly results, with 77% exceeding estimates, the highest percentage since Q2 2024. Earnings growth for Q1 stands at +13.1%, significantly outperforming the pre-season expectation of +6.6%. Projections for full-year 2025 corporate profits for the S&P 500 now reflect a +9.4% increase, revised down from early January’s forecast of +12.5%.

International stock markets on Thursday experienced mixed results. The Euro Stoxx 50 gained +0.16%, the Shanghai Composite in China dropped by -0.68%, and Japan’s Nikkei 225 decreased by -0.98%.

Interest Rates

June 10-year T-notes (ZNM25) rose +17 ticks on Thursday, with the 10-year Treasury note yield declining -8.5 basis points to 4.451%. T-notes gained because of easing price pressures indicated by the weaker-than-expected US April PPI report. Additionally, a -2% drop in crude oil prices further lowered inflation expectations, benefiting T-notes. Further gains occurred after manufacturing production fell the most in six months, and the NAHB housing market index dropped unexpectedly, fueling speculation for potential Fed rate cuts.

European government bond yields decreased today, with the 10-year German bund yield falling -7.7 basis points to 2.622%. The 10-year UK gilt yield also dropped by -5.3 basis points to 4.660%.

The Eurozone Q1 GDP growth rate was revised down to +0.3% quarter-over-quarter from the previously reported +0.4%. Industrial production in the Eurozone for March increased by +2.6% month-over-month, surpassing expectations of +2.0% and marking the largest rise in over four years. The UK Q1 GDP recorded a +0.7% quarter-over-quarter increase and +1.3% year-over-year, better than the +0.6% and +1.2% forecasts, respectively. ECB Vice President Guindos expressed concerns that trade tensions, high funding costs, and sluggish growth could hinder Eurozone economic performance.

Swaps currently reflect a 91% probability for a -25 basis point rate cut by the ECB at the upcoming June 5 policy meeting.

US Stock Movers

Foot Locker (FL) surged by over +85% after Dick’s Sporting Goods announced an agreement to acquire the company for $24 per share, totaling approximately $2.4 billion. Additionally, previously struggling pharmaceutical stocks rebounded on Thursday. Companies like Bristol-Myers Squibb (BMY), Abbott Laboratories (ABT), Amgen (AMGN), and Vertex Pharmaceuticals (VRTX) each saw gains of over +3%. Other firms including Biogen (BIIB), Pfizer (PFE), Eli Lilly (LLY), AbbVie (ABBV), AstraZeneca Plc (AZN), and Regeneron Pharmaceuticals (REGN) rose more than +2%.

Despite this, chip stocks declined Thursday, reversing part of the week’s advances. Advanced Micro Devices (AMD) fell by more than -2%, along with ON Semiconductor Corp (ON), ASML Holding NV (ASML), Marvell Technology (MRVL), and GlobalFoundries (GFS), which all saw declines of over -1%.

This weakness in chip stocks had a notable impact on the broader market. The Magnificent Seven stocks also faced challenges, with Amazon.com (AMZN) and Meta Platforms (META) dropping by more than -2%, and Tesla (TSLA) falling by over -1%. Similarly, Alphabet (GOOGL) decreased by -0.85%, Apple (AAPL) by -0.47%, and Nvidia (NVDA) by -0.38%.

Steris Plc (STE) led the S&P 500 gainers on Thursday, closing up more than +8% after reporting Q4 life sciences revenue of $149.5 million, exceeding the consensus estimate of $147.2 million.

Cisco Systems (CSCO) gained over +4% following a Q3 revenue report of $14.15 billion, which was higher than the consensus of $14.05 billion. The company also raised its full-year revenue forecast to between $56.5 billion and $56.7 billion, up from the previous estimate of $56.0 billion to $56.5 billion.

Deere & Co (DE) saw a rise of more than +3% after reporting Q2 net sales and revenue of $12.76 billion, better than the consensus of $12.42 billion. Chubb Ltd (CB) also closed up more than +3% after announcing a $5 billion share buyback plan.

Conversely, UnitedHealth Group (UNH) experienced a decline greater than -10% after reports emerged of a criminal investigation concerning potential Medicare fraud. Fiserv (FI) dropped more than -16% after its CFO stated Q1 growth faced headwinds and that these would likely intensify in Q2.

DXC Technology (DXC) fell over -3% after projecting 2026 revenue between $12.18 billion and $12.44 billion, falling short of the consensus estimate of $12.52 billion. AppLovin (APP) decreased by more than -2% amid indications of insider selling, with SEC filings showing that Director Billings sold over $4 million worth of shares on Monday. Crowdstrike Holdings (CRWD) also saw a slight decline of more than -1% after Mizuho Securities downgraded the stock from outperform to neutral.

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On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information, please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.