The S&P 500 index climbed 1.1% on Tuesday. It reached within 1% of its record high. This was driven by a decline in war tensions.
It was also driven by neutral-to-positive signals from the Federal Reserve. This marks a significant bounce back for the equity gauge. It follows 12 days of geopolitical anxiety.
The recent Iran-Israel ceasefire has reduced the immediate risk of escalation. This is despite some violations from both sides. It has allowed global markets to stabilize.
This development brought relief to investors. They had been reacting to fluctuating oil prices, currencies, and safe-haven assets amidst the conflict. The tech-heavy Nasdaq Composite also saw a 1.4% rise.
There were notable gains in five members of the Mag 7 group. However, Tesla dropped 2.4% after unveiling its robotaxi pilot program. Apple fell 0.6%.
The Dow Jones Industrial Average advanced by 1.2%.
Fed’s stance eases market anxiety
Fed Chair Jay Powell’s testimony to Congress further fueled the rally.
He acknowledged the central bank is closely monitoring disinflation. He did not rule out a rate cut in September. “We’ll get an inflation report well before the July meeting.
We will continue to adapt to the evolving situation,” Powell stated. This suggests that a continued downward trajectory in inflation could lead to a rate cut sooner than expected. Current market projections give an 18.6% chance of a rate cut in July.
But there is an 87% probability for September. This is according to the CME FedWatch tool. With only four policy meetings left for the year, the window for the Fed to act is narrowing.
Powell’s comments relieved investors. They were concerned about potentially high inflation forcing the Fed to keep rates elevated. Since December, the Fed has maintained interest rates between 4.25% and 4.50%.
It is trying to engineer a soft economic cooling. Jay Powell will continue his testimony today. He will be in front of the Senate Committee on Banking, Housing, and Urban Affairs.
