The S&P 500 and Nasdaq Composite hit their highest closes in 14 months on Tuesday as the market awaited the U.S. Federal Reserve’s policy decision.
The S&P 500 finished at 4,369.01, adding 30.08 points or 0.69 percent. The tech-heavy Nasdaq Composite concluded the trading session at 13,573.32, gaining 111.40 points or 0.83 percent. The Dow Jones Industrial Average also rose by 145.79 points or 0.43 percent to close at 34,212.12.
Analysts said the recently published consumer price data heightened expectations for an interest rate hike pause by the Fed. The U.S. Labor Department reported that consumer prices grew by 0.1 percent in May, a slower rate than the 0.4 percent increase the month before.
Headline inflation was at four percent last month, showing declines in energy and services prices. Core inflation, excluding food and energy prices, remained flat at 0.4 percent.
“If the Fed was looking for data to point to say, ‘We’re going to pause in June,’ I think they got it today,” said SoFi head of investment strategy Liz Young. “But it’s another one of those that you can cut whichever way you want to make your case.”
Investors now project a 93 percent chance that the Fed will keep the interest rate steady at the 5.00 to 5.25 percent range on June 14. However, the central bank is expected to introduce another 25-basis-point hike next month.
“If you want to be bullish, you say inflation is down more than 50% since its peak. If you want to be bearish, you can say inflation is still more than twice the Fed’s target.”
Liz Young, SoFi head of investment strategy
Ten of 11 S&P 500 sectors advanced on Tuesday, with the materials sector leading the gain by adding 2.33 percent. The industrials sector was the second-best performer for the day, increasing by 1.16 percent to 879.55.
The Russell 2000 index, which tracks 2,000 small-cap American companies, also rose by 1.23 to 1,896.33, the highest in three months.
Intel strengthened by 2.54 percent to $33.91 after a report suggested that the chipmaker was in talks to be an anchor investor in SoftBank Group’s Arm’s initial public offering. Intel’s peer, Nvidia, also saw a 3.90 percent gain to $410.22.
Shares of Bunge also jumped by 2.54 percent to $96.17 after the grains seller announced a merger with rival Viterra. Analysts say the combined value of the two companies will be around $34 billion, including debt.
Tesla’s stock also increased by 3.55 percent at the closing bell, extending its gaining streak to 13 straight sessions. Analysts argue that the federal subsidy update on its Model 3 has supported its rally. Additionally, investors forecast an improved outlook for Tesla’s Chinese business.
S&P 500 to hit new highs in coming years
Analysts predict that the S&P 500 will reach new highs in the coming years. The index has risen by around 22 percent from its October 2022 low, supported by gains in heavyweight stocks like Apple, Nvidia and Tesla. Last year, the benchmark index posted its worst loss since the financial crisis in 2008.
JPMorgan global head of equity macro research Dubravko Lakos said the S&P 500 could breach the 4,900 level by the end of the year, adding that the scenario is possible if the U.S. does not experience a recession this year.
Analysts at the Bank of America (BofA) also said the equity market would see a “strong” rally into the early next year. BofA technical research strategist Stephen Suttmeier said the S&P 500 would hit the 4,900 line by February next year.
Suttmeier pointed out that market breadth had stabilized. He also said credit spreads were “benign,” which would support a market rally in the summer.