U.S. equity indexes experienced a notable surge, driven by widespread sector gains as government bond yields declined, fueled by anticipations surrounding potential rate cuts in the Federal Reserve's upcoming policy statements. In a robust market response, the Nasdaq Composite soared 2.4%, reaching 17,553.1, while the S&P 500 climbed 1.6% to settle at 5,522.2.
The Dow Jones Industrial Average also marked an upward shift, rising 0.7% to close at 41,014.8 as midday trading progressed on Wednesday. The Federal Open Market Committee is set to unveil its policy statement at 2:00 PM ET, which will be complemented by a press conference from Fed Chair Jerome Powell at 2:30 PM ET.
Market analysts are closely monitoring the CME FedWatch tool, which indicates a staggering 97% probability that the Federal Reserve will maintain the current target range of 5.25% to 5.5% through July. However, the outlook for September reveals a substantial 88% likelihood of a rate cut, as further data suggest inflation is gradually aligning with the Fed's 2% target amidst a cooling labor market.
Looking at employment metrics, the ADP's latest monthly private payroll report revealed an increase of 122,000 jobs in July. This figure falls short of Bloomberg's projections of 150,000 and represents a decline from the previous month's gain of 155,000 jobs. Further insights from the Institute for Supply Management indicated that the Chicago PMI dropped to 45.3 in July, down from 47.4 in June, indicating a deeper contraction in the economic landscape, as it contrasts with the 45 figure anticipated by Bloomberg's survey.
The U.S. Bureau of Labor Statistics also released the quarterly employment cost index which saw an increase of just 0.9% in Q2, marking a slowdown compared to the 1.2% growth seen in the prior quarter and below the estimate of 1% predicted in Bloomberg's survey. In the bond market, most Treasury yields fell during intraday trading.
The 10-year Treasury yield dipped four basis points to 4.1%, while the 30-year yield decreased by 5.2 basis points to 4.35%. On the earnings front, Advanced Micro Devices saw its shares leap 4.3% intraday following the release of higher adjusted earnings and revenue for Q2. The semiconductor sector also saw gains, with shares of Nvidia, Broadcom, Micron Technology, and ASML rising significantly, bolstering the Nasdaq's ascension.
A research note from D.A. Davidson attributed the uptick in chip stocks to an optimistic forecast from Advanced Micro Devices. Meanwhile, Microsoft, in a late Tuesday release, reported fiscal fourth-quarter results that exceeded expectations, although revenue from its intelligent cloud segment fell short of Wall Street’s forecasts.
This led Microsoft shares to trade 2% lower intraday, following a more than 6% dip in after-hours trading on Tuesday. In light of recent reports, ASML is anticipated to be featured on a list of semiconductor companies that will be exempt from extensive new trade restrictions targeting China, according to sources familiar with the developments.
This exemption is set to pertain to ASML and other companies based in the Netherlands and Japan, which will benefit from the relaxed trade measures. Across the board, all sectors within the S&P 500, Nasdaq, and Dow experienced gains during intraday trading, with technology, consumer discretionary, and communication services leading the charge.
The rally was broad, encompassing sectors such as utilities, industrials, and materials as well. Additionally, West Texas Intermediate crude oil surged by 3.9%, reaching $77.64 per barrel, while gold and silver also saw positive movements, with gold rising by 0.8% to $2,471.73 an ounce and silver increasing by 1.4% to $28.91.
With the markets responding positively to these developments, the financial landscape remains dynamic, highlighting key interactions between economic indicators, monetary policy, and corporate performance..