Stocks rose on Monday as prospects of the U.S. Federal Reserve cutting interest rates as early as July offset uncertainty about escalating turmoil in the Middle East.
All three major U.S. stock indexes closed sharply higher. Canada’s main stock index also rose, although gains were held back somewhat by a drop in oil prices.
“The rally is a bit surprising,” said Jay Hatfield, CEO and portfolio manager at InfraCap in New York. “In a way, the U.S. attack puts an end to the uncertainty of whether the U.S. is going to attack.”
“The market action is extremely bullish because this is the time frame in June when we’re supposed to have a pullback,” Hatfield added. “People do not want to sell in this market.”
Fed Vice Chair Michelle Bowman said on Monday “it is time to consider adjusting the policy rate,” as risks to the job market outweigh inflationary concerns related to tariffs. Chicago Fed President Austan Goolsbee said that thus far, tariffs have had a more modest economic impact than expected.
Financial markets are pricing in at least two 25-basis-point rate cuts by the Fed before year-end. The first cut is widely expected to happen in September.
Israel continued to bombard Iran the day after the U.S. joined the war.
Still, oil prices tumbled after Iran’s retaliation did not include action to disrupt oil and gas tanker traffic through the Strait of Hormuz. Tehran had warned it would close the Strait of Hormuz, a crucial oil shipping route.
“The markets are reading this as ‘hey, we’re successful,’ we took out their nuclear capabilities and we were able to support any counter-strikes,” said Paul Nolte, senior wealth advisor & market strategist at Murphy & Sylvest in Elmhurst, Illinois. “I think there was a lot of concern that Iran would do much more than it did.”
On the economics front, S&P Global’s advance “flash” purchasing managers’ indexes (PMI) showed the U.S. economy is expanding at a slightly more robust pace than analysts anticipated. A separate report showed new home sales, while under pressure from elevated borrowing costs, posted an unexpected gain in May.
Later in the week, the Commerce Department’s final take on first-quarter GDP and its Personal Consumption Expenditures (PCE) and Fed Chair Jerome Powell’s congressional testimony are likely to be parsed for clues regarding the near-term path of monetary policy.
Consumer discretionary stocks led the sector gainers on Wall Street, with a solid boost from Tesla.
Tesla shares surged after the long-awaited launch of the company’s robotaxi service in Austin, Texas. The electric vehicle maker’s shares advanced 8.2%.
The Dow Jones Industrial Average rose 374.96 points, or 0.89%, to 42,581.78, the S&P 500 gained 57.33 points, or 0.96%, to 6,025.17 and the Nasdaq Composite gained 183.57 points, or 0.94%, to 19,630.98.
The S&P/TSX Composite Index ended up 111.79 points, or 0.4%, at 26,609.36, stopping just short of the record closing high it posted on June 12.
The TSX has rebounded about 18% from its lowest closing level in April, helped by gains for the heavily weighted financial and materials sectors.
Materials rose 0.9% on Monday as gold and copper prices climbed.
Technology was up 1.5% and consumer discretionary ended 0.9% higher. Energy was the only one of ten major sectors to end lower. It lost 3.5% as the price of U.S. crude settled 7.2% lower at US$68.51 a barrel.
Among the 11 major sectors of the S&P 500, consumer discretionary stocks led the gainers, while energy, weighed by falling crude prices, was the only sector to close in negative territory.
Among U.S. stocks, Fiserv’s shares rose 4.4% following its announcement that it would launch a new digital asset platform.
Northern Trust jumped 8.0% after a Wall Street Journal report said Bank of New York Mellon broached the topic of a potential merger.
AI-server-maker Super Micro Computer dropped 9.8% after it announced a private offering of $2 billion five-year convertible bonds.
Quarterly results from sportswear company Nike and package delivery firm FedEx are expected later in the week.
Advancing issues outnumbered decliners by a 2.35-to-1 ratio on the NYSE. There were 128 new highs and 71 new lows on the NYSE. On the Nasdaq, 2,591 stocks rose and 1,875 fell as advancing issues outnumbered decliners by a 1.38-to-1 ratio. The S&P 500 posted 12 new 52-week highs and 4 new lows while the Nasdaq Composite recorded 91 new highs and 113 new lows.
Volume on U.S. exchanges was 18.60 billion shares, compared with the 18.16 billion average for the full session over the last 20 trading days.
Reuters, Globe staff