Stocks clung close to record highs Tuesday as Federal Reserve Chair Jerome Powell gave no hint that the central bank would alter its current outlook for interest rate cuts this year.
The Fed chief's words helped keep the bears at bay, allowing mega-cap tech stocks to continue to propel two of the three major benchmarks higher.
All eyes were on the central bank chief as he delivered the first of two days of semiannual testimony before Congress. Speaking to the Senate on Tuesday, Powell reiterated the key conclusions from the Federal Open Market Committee's June meeting.
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"Chair Powell's written semi-annual Monetary Policy Testimony is mostly a carbon copy of the June FOMC statement," writes Ian Shepherdson, chairman and chief economist at Pantheon Macroeconomics. "Mr. Powell remains reluctant to signal the onset of monetary easing well in advance, scarred by the burst of inflation in Q1, but reading between the lines we think his base case is a September easing."
The economist notes Powell gives "a hint of rising anxiety" about waiting too long to cut. "The Jackson Hole symposium, held between August 22 and 24, provides an ideal opportunity for him to give customary notice of an impending policy change," Shepherdson says.
Market participants are eagerly awaiting the Fed's first quarter-point cut, which will bring interest rates down from a 23-year high. Although the FOMC signaled just one cut this year at the Fed's June meeting, a slowing jobs market and easing wage pressures have increased the odds of the central bank turning more dovish over the next couple of months.
As of July 9, futures traders assigned a 70% probability to the FOMC enacting its first cut to the federal funds rate in September, up from 63% a week ago, according to CME Group's FedWatch Tool.
At the closing bell, stocks were little changed on light volume. The broader S&P 500 inched up 0.07% to 5,577, while the tech-heavy Nasdaq Composite gained 0.1% to 18,429. The blue-chip Dow Jones Industrial Average was off 0.1% at 39,292.
Econ news and earnings on tap
Fed Chief Powell wraps up his second day of testimony before Congress on Wednesday, this time appearing before the House. The central banker will face more questions about inflation, a subject which will come into greater focus on Thursday with the release of the next CPI report.
Annual headline inflation is forecast to increase by 3.1%, according to the Federal Reserve Bank of Cleveland, down from the 3.3% rate seen in the May CPI report. On a monthly basis, June inflation is forecast to rise 0.1%, or essentially unchanged from the prior month. June's core CPI, which excludes volatile food and energy prices, is expected to increase 3.5% annually and 0.3% on a monthly basis.
On the earnings front, the tempo should pick up on Thursday when Delta Air Lines (DAL) reports ahead of the opening bell. Morgan Stanley analyst Ravi Shanker says that DAL is one of the "cleanest stories" in airlines right now, citing Delta's outsized exposure to corporate travel vs peers. The analyst rates DAL at Overweight (the equivalent of Buy), calling it a "top pick."
On Friday, JPMorgan Chase (JPM), the nation's biggest bank by assets, is slated to post results, as is Citigroup (C). Jefferies analyst Ken Usdin, who rates JPM at Buy notes that loan growth for many banks remains sluggish due to high interest rates, which could continue to weigh on net interest income (NII) in the near term.
Tesla stock notches 10th straight win
Not too long ago, Tesla (TSLA, +3.7%) was the little Magnificent 7 stock that couldn't. At one point in late April, shares were off more than 40% for the year-to-date. Concerns about price cuts and sluggish deliveries had the market undergoing a major re-rating of this stock.
Cut to today, and Tesla stock just notched its 10th straight win – a rally supported in part by better-than-expected deliveries in the second quarter. Not only is TSLA stock up more than 40% over the past 10 sessions – it's now up 6% for the year-to-date.
If nothing else, the Mag 7 stock – at 3% of the Nasdaq-100 index – has finally started pulling its weight.
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