Wall Street’s remarkable rally continued into its seventh consecutive day on Wednesday, pushing the U.S. stock market to new all-time highs. The Standard & Poor’s 500 index surged 1%, surpassing the 5,600 level for the first time. Similarly, the Nasdaq composite enjoyed its seventh straight gain, adding 1.2% to set another record high. The Dow Jones industrial average also experienced significant growth, climbing 429 points, or 1.1%.
Technology Sector Leads the Charge
The rally was primarily driven by big technology companies, a trend that has become the norm on Wall Street. Notably, Taiwan Semiconductor Manufacturing Company (TSMC), whose U.S.-listed shares rose 3.5%, reported a revenue increase of nearly 33% in June compared to the previous year. TSMC manufactures chips for Nvidia and other companies leading the artificial intelligence (AI) revolution, which has significantly boosted business optimism and stock performance.
Nvidia, a prominent player in the AI sector, saw its stock rise by 2.7% on Wednesday, contributing to its impressive year-to-date gain of 172.5%. This strong performance has been a major factor driving the S&P 500 upward. Another notable contributor was Advanced Micro Devices (AMD), which jumped 3.9% after announcing a $665-million acquisition of Silo AI, a European AI laboratory.
AI Frenzy and Market Dynamics
The fervor surrounding AI has been a significant factor propelling the U.S. stock market to record levels, even amid a slowing economy and financial pressures on lower-income households. Additionally, there are hopes that slowing inflation may prompt the Federal Reserve to cut interest rates later this year.
Federal Reserve’s Stance
Federal Reserve Chair Jerome Powell addressed Congress again on Wednesday, reiterating his previous day’s remarks about interest rates. He emphasized that no clear signals were being sent about the timing of potential rate cuts. Powell highlighted the delicate balance the Fed must maintain between cutting rates too early, which could reignite inflation, and waiting too long, which might deepen an economic slowdown into a recession.
Market Expectations and Economic Indicators
Despite the cautious stance of the Fed, many on Wall Street anticipate that the central bank will begin cutting its main interest rate in September. However, Powell warned that traders often prematurely predict such moves. He acknowledged recent improvements in inflation data but stressed that the Fed needs more consistent evidence that inflation is moving sustainably toward its 2% target.
The yield on the 10-year Treasury note edged down slightly to 4.28% from 4.30% the previous day, and from 4.70% in April. This decline in yields is significant for the bond market and provides support for stock prices. Meanwhile, the two-year Treasury yield, which is more sensitive to expectations of Fed action, remained steady at 4.62%.
Upcoming Economic Reports and Earnings Season
A crucial report due on Thursday could influence market movements further. The U.S. government is set to release the latest monthly inflation update, with economists predicting a 3.1% year-over-year increase in consumer prices for June, down slightly from May’s 3.3% rate. Additionally, the week will see the unofficial start of the latest earnings reporting season, with companies like Delta Air Lines and JPMorgan Chase expected to report their profits for the April-June quarter. Wall Street is hopeful for the strongest earnings growth in over two years.
Notable Market Movements
Smart Global Holdings, a technology firm involved in computing, memory, and LED businesses, saw its shares rise by 26.3% after reporting better-than-expected profit and revenue for the latest quarter. Conversely, LegalZoom experienced a significant drop, falling 25.4% following the announcement that its CEO, Dan Wernikoff, is leaving the company and resigning from its board. The company also lowered its revenue forecast for the year.
Global Market Overview
In international markets, Japan’s Nikkei 225 rose by 0.6% to close at a record high, having jumped 25% so far this year, surpassing the U.S. stock market’s performance. AI enthusiasm has fueled gains in Japan’s technology stocks, and exporters have benefited from a weaker yen, which enhances their profits. Other Asian markets showed mixed results, while European indexes experienced gains.
In summary, Wall Street’s extended rally highlights the continued optimism surrounding AI and technology stocks, despite economic challenges and uncertainties about future interest rate policies. As the market eagerly awaits further economic data and corporate earnings reports, the performance of key sectors and the Fed’s next moves will remain closely watched.