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Yahoo
32 minutes ago
- Yahoo
What stops the tech juggernaut?
By Jamie McGeever ORLANDO, Florida (Reuters) -TRADING DAY Making sense of the forces driving global markets By Jamie McGeever, Markets Columnist Wall Street took a breather on Thursday, but not before another tech whoosh lifted the S&P 500 and Nasdaq to new highs, while the dollar and bond yields ended little changed as investors trimmed positions ahead of Friday's U.S. jobs data. More on all that below. In my column today I analyze Fed Chair Jerome Powell's press conference, and the message that came across loud and clear - as long as the unemployment rate stays low, it will be very hard to justify rate cuts. If you have more time to read, here are a few articles I recommend to help you make sense of what happened in markets today. 1. Fed's reticence on rate cuts forces market to rethinkoutlook 2. BOJ turns less gloomy on economy, keeps rate-hike chancealive 3. U.S.-China trade war could push ECB to continue easing:Mike Dolan 4. Microsoft races past $4 trillion valuation after solidresults 5. Big Tech may be breaking the bank for AI, but investorslove it Today's Key Market Moves * FX: Dollar gains for sixth day, up 2.5% this week. Hitsfour-month high vs yen above 150.00 yen. * STOCKS: S&P 500 and Nasdaq hit new highs but end down0.4% and flat, respectively. Dow falls 0.7%, Russell 2000 loses0.9%. * SHARES/SECTORS: Microsoft shares +5%, Meta +11%, techsector +2%. Apple +3% and Amazon -4% in after-hours tradefollowing earnings. * BONDS: Treasury yields end little changed, after beinglower for much of the day by as much as 5 bps. * COMMODITIES: Comex copper crashes 22% after Trumpexempts refined copper from 50% tariffs. Premium over LMEcopper, around $3,000 earlier this month, virtually disappears. What stops the tech juggernaut? It's easy to forget in the midst of the bullish frenzy, but asset price booms do end, either over time, or more suddenly and painfully. Predicting the catalyst can be difficult, getting the timing right is akin to a lottery. Right now, the rally in U.S. Big Tech looks unstoppable. Inflation, a hawkish Fed, rising bond yields, tariffs, AI overspend worries? They've all been thrown at the sector but it has powered ahead, lifting the S&P 500 and Nasdaq to record high after record high in recent weeks. Meta and Microsoft did the heavy lifting on Thursday, with Microsoft joining Nvidia in the rarified air of the $4 trillion market cap club. Both Meta and Microsoft's after-hours earnings reports on Wednesday show their AI bets are paying off. The global equity picture was much gloomier, however, as Powell's hawkish signals on Wednesday and U.S. inflation data on Thursday pushed most major indices into the red. On the macro front, annual U.S. core PCE inflation was 2.8% and the Dallas Fed's trimmed mean PCE rate shot up to 3.4%, the highest since February last year. There are signs the tariff effect on goods prices is kicking in. Ernie Tedeschi at the Budget Lab at Yale posted on X that PCE durable goods prices are up 1.7% this year. Excluding the pandemic, that's the biggest six-month rise since 1987. On tariffs, U.S. President Donald Trump on Thursday gave Mexico a 90-day reprieve to negotiate a broader trade deal, but is later expected to slap new levies on countries that have not struck trade deals by his 12:01 a.m. EDT (0401 GMT) deadline. As economist Phil Suttle points out, the so-called 'BRICS' countries have stood up to Trump more than developed economies, who have "generally preferred to sue for peace." But they're paying a price - as things stand, China and Brazil are facing tariffs of up to 50%; South Africa 30%; and India 25%. "This is a case of a world turned upside down, and not one that improves the global outlook," Suttle says. The focus now turns to July's U.S. employment data on Friday. Solid job growth and, more importantly, a low unemployment rate could snuff out all bets on a September rate cut. Right now, market pricing shows a September cut is basically a coin toss. Have we seen Powell's last rate cut as Fed chair? Federal Reserve Chair Jerome Powell made it clear on Wednesday that the resilient U.S. labor market is currently the primary determinant of monetary policy, a signal that strong July employment figures could snuff out all bets for a September rate cut and reduce the likelihood of any further easing this year. At his press conference following the Federal Open Market Committee's meeting on Wednesday, Powell insisted that the rate-setting body's next move will depend on the "totality" of incoming economic data. He acknowledged the case for easing, like the softening in consumer spending, GDP growth of only 1.2% in the first half of the year, and downside risks to the job market from weakening labor demand and supply. But he signaled why the Fed is maintaining its mildly restrictive stance: "The main number you have to look at right now is the unemployment rate," Powell told reporters. This firm position is particularly notable given that Governors Christopher Waller and Michelle Bowman voted to ease, the first time in over 30 years that there have been two dissenters at a Fed policy meeting. But Powell has a point. The labor market is still broadly in balance, thanks to tighter immigration controls capping the inflow of foreigners into the workforce. Other indicators like job quits and openings rates are holding up well too. Plus, an unemployment rate of only 4.1% is hardly justification for a rate cut. The initial market reaction – a retreat on Wall Street, rise in bond yields, surge in the dollar and further cooling of rate cut bets in money markets – suggests investors heard Powell's message loud and clear. Rates futures markets now indicate that the probability of a quarter-point cut in September is essentially a coin toss, the least dovish pricing in over a year. Only one rate cut by the end of this year is fully priced. Steven Englander, head of global G10 FX research at Standard Chartered, says it's difficult to argue with the market's interpretation based on Powell's tone. "Powell is pretty clear that he's tying himself to the unemployment rate," Englander notes. PRECARIOUS FULL EMPLOYMENT The labor market's resilience shows why financial markets have once again overestimated the Fed's appetite for easing. The unemployment rate has been anchored at 4.0-4.2% for over a year. That's historically low, and as Powell says, essentially shows the economy is running at full employment. As long as that remains the case it will be difficult to justify cutting rates, even if that balance is increasingly precarious due to the "dual slowing" of labor supply and demand, as RBC's Mike Reid puts it. And we mustn't ignore inflation, which also arguably warrants Powell's "modestly" restrictive policy stance. Annual inflation is running "somewhat" above the Fed's 2% target, according to Powell, with core CPI at 2.9% and core PCE at 2.8%. And with the pass through from tariffs yet to be fully felt, the risks to prices are skewed to the upside. Powell reckons that tariffs should represent a one-off price rise only, but he admits no one can be sure. If the nascent tariff-fueled creep in goods prices persists, the Fed may feel it has to wait to ease policy until the impact subsides. And that probably won't be until next year. At the height of the post-Liberation Day turmoil in early April, traders were pricing in more than 130 basis points of easing this year. And just one month ago, they were expecting around 70 bps of cuts by year end, but that's now down to around 35 bps. Looking further out, only 65 bps of easing is priced into the futures curve by May of next year when Powell's term as Fed Chair ends. Could Powell have presided over his last rate cut as Fed Chair? That's unlikely, but certainly not impossible. What could move markets tomorrow? * Australia retail sales (July) * Japan manufacturing PMI (July) * China unofficial manufacturing PMI (July) * UK manufacturing PMI (July) * Euro zone HICP inflation (July, flash estimate) * U.S. non-farm payrolls (July) * U.S. ISM, S&P Global manufacturing PMIs (July) * U.S. University of Michigan consumer sentiment, inflationexpectations (July, final) * U.S. earnings including Exxon and Chevron Want to receive Trading Day in your inbox every weekday morning? Sign up for my newsletter here. Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. (By Jamie McGeever; Editing by Nia Williams)
Los Angeles Times
41 minutes ago
- Los Angeles Times
Losses for health care stocks help push Wall Street lower
Stocks capped a choppy day of trading on Wall Street with more losses Thursday after an early big tech rally faded and a health care sector pullback led the market lower. The S&P 500 fell 0.4%, its third straight decline. The benchmark index, which is just below the record high it set on Monday, notched a 2.2% gain for the month of July and is up 7.8% so far this year. The Dow Jones Industrial Average lost 0.7%, and the Nasdaq composite closed less than 0.1% lower. Roughly 70% of stocks in the S&P 500 lost ground, with health care companies accounting for the biggest drag on the market. Health care stocks sank after the White House released letters asking big pharmaceutical companies to cut prices and make other changes in the next 60 days. Eli Lilly & Co. fell 2.6%, UnitedHealth Group slid 6.2% and Bristol-Myers Squibb dropped 5.8%. Gains by some big technology stocks with hefty values helped temper the impact of the broader market's decline. Meta Platforms surged 11.3% after the parent company of Facebook and Instagram crushed Wall Street's sales and profit targets even as the company continues to pour billions of dollars into artificial intelligence. Microsoft climbed 3.9% after posting better results than analysts expected. The software pioneer also gave investors an encouraging update on its Azure cloud computing platform, which is a centerpiece of the company's artificial intelligence efforts. Big Tech companies have regularly been the driving force behind much of the market's gains over enthusiasm for the future of artificial intelligence. Elsewhere in the market, design software company Figma soared in its stock market debut. The stock vaulted 250% above its initial public offering price of $33 a share. All told, the S&P 500 fell 23.51 points to 6,339.39. The Dow dropped 330.30 points to 44,130.98, and the Nasdaq gave up 7.23 points to finish at 21,122.45. Earnings remain a key focus outside of the technology sector in what has been a heavy week so far for corporate financial results. CVS Health fell 0.3% after it topped Wall Street expectations for the second quarter and raised its full-year forecast again. In economic news, the Commerce Department said prices rose 2.6% in June compared with a year ago, as measured by the personal consumption expenditures index. That's the Federal Reserve's preferred measure for inflation. The latest reading was slightly higher than economists expected and also marks an increase from an annual pace of 2.4% in May. Results from another measure of inflation earlier this month, the consumer price index, also showed inflation rising in June. Also on Thursday, a report showed that the number of Americans filing for unemployment benefits inched up last week. The latest updates on inflation and the jobs market are landing amid lingering concerns about the impact of tariffs. Inflation's temperature is being closely monitored by businesses and the Fed to better gauge the impact of President Donald Trump's on-again-off-again approach to import taxes. Companies including Ford and Hershey's have more recently warned that tariffs are weighing on their latest and projected financial results. Trump has said he will levy tariffs against goods from dozens of countries if they don't reach agreements with the U.S. by Friday. The latest developments in the seemingly unpredictable tariff landscape include a potential pause in tariff escalations with China and a deal with South Korea. However, Trump said Thursday that he would enter a 90-day negotiating period with Mexico over trade as 25% tariff rates stay in place. The reasons behind trade policy decisions remain unpredictable. On Wednesday, Trump signed an executive order to impose his threatened 50% tariffs on Brazil. He has directly linked the import tax to the trial of his ally, the country's former president Jair Bolsonaro. He has also said that trade negotiations with Canada would be more difficult in the wake of that nation's economically unrelated decision to recognize a Palestinian state. Uncertainty over tariffs and inflation have prompted the Fed to leave its benchmark interest rate alone through the central bank's past five meetings, including the one that ended Wednesday. The Fed has been trying to cool the rate of inflation back to its target of 2%. It has come close, but inflation remains stubbornly stuck just above that target. A cut in rates would give the job market and overall economy a boost, but it could also risk fueling inflation. Fed Chair Jerome Powell has been pressured by Trump to cut the benchmark rate, though that decision isn't his to make alone, but belongs to the 12 members of the Federal Open Market Committee. 'Inflation is only a bit above the Fed's target, but looks likely to rise in the second half of the year due to tariffs,' said by Bill Adams, chief economist for Comerica Bank. 'With the job market in pretty good shape, they see room to hold interest rates steady and lean against inflation's increase near-term.' Wall Street has been tempering their expectations for rate cuts at the Fed's next meeting in September. Traders now see a 39% chance of a rate cut, according to data from CME Group. That's down from 58.4% a week ago and a 75.4% chance a month ago. Treasury yields held steady in the bond market. The yield on the 10-year Treasury was unchanged at 4.37%. The yield on the two-year Treasury remained at 3.94% from late Wednesday. Markets were mostly mixed in Asia and Europe. Troise and Veiga write for the Associated Press.
Hamilton Spectator
41 minutes ago
- Hamilton Spectator
S&P/TSX composite finishes 110 points lower, U.S. markets decline
TORONTO - Canada's main stock index finished lower Thursday with broad-based losses amid a flurry of earnings and economic data, while U.S. markets also fell. The S&P/TSX composite index was down 110.18 points at 27,259.78 as utilities, technology, and energy moved lower. In New York, the Dow Jones industrial average was down 330.30 points at 44,130.98. The S&P 500 index was down 23.51 points at 6,339.39, while the Nasdaq composite was down 7.22 points at 21,122.45. The Canadian dollar traded for 72.23 cents US compared with 72.41 cents US on Wednesday as Statistics Canada data showed the economy shrank in May but growth could hold flat for the quarter overall. The September crude oil contract was down 74 cents US at US$69.26 per barrel. The December gold contract was down US$4.20 at US$3,348.60 an ounce. This report by The Canadian Press was first published July 31, 2025. Companies in this story: (TSX:GSPTSE, TSX:CADUSD)
