Wall Street is nearing record highs once again this Tuesday, driven by stronger-than-expected profits from several major companies for the spring quarter. This broad-based rally has seen five out of every six stocks in the S&P 500 rising, propelling the index up by 0.4% in afternoon trading and setting it on course to surpass its all-time high from last week. The Dow Jones Industrial Average led the market surge with a significant leap of 651 points, or 1.6%, following its record-setting performance the previous day. Meanwhile, the Nasdaq composite lagged slightly, dipping by 0.1% as of 2:31 p.m. Eastern time.
What’s Driving Wall Street’s Rally
The primary force behind the market’s robust performance was UnitedHealth Group, which reported stronger-than-expected results for the spring quarter, despite the financial impact of a massive cyberattack. The health care giant saw its stock rise by 6% as it reported growth in the number of people served by both its Optum and UnitedHealth businesses. Similarly, Bank of America experienced a 5.5% rally after exceeding profit forecasts for the latest quarter, buoyed by growth in its investment banking operations.
These gains helped offset declines in several influential Big Tech stocks, whose substantial market capitalizations mean their movements have a significant impact on market indices. Nvidia, for instance, was the largest drag on the S&P 500, falling by 2.1%. However, this decline represents only a minor setback compared to the extraordinary gains the chipmaker has achieved over the past year amidst Wall Street’s enthusiasm for artificial intelligence technology. Nvidia shares remain up by 154% for the year to date.
Market analysts have been advocating for a broader market rally, emphasizing that a market where numerous stocks are rising is healthier than one driven by just a few dominant players. Solita Marcelli, Chief Investment Officer for the Americas at UBS Global Wealth Management, noted that only 24% of companies in the S&P 500 have outperformed the index so far this year, down from an already low 26% last year.
Significantly, smaller companies also outperformed their larger counterparts, reversing a trend of underperformance. The Russell 2000 index of smaller stocks surged by 2.9%, far outpacing the S&P 500’s gains. This broadening of market participation is seen as a positive indicator for the overall health of the stock market.
Meanwhile, several companies that saw significant gains the previous day, driven by heightened expectations for former President Donald Trump to retake the White House, gave back some of their gains. Trump Media & Technology Group, for example, fell by 8.3% after jumping 31.4% the day before. Shares of the company, which owns the Truth Social platform, frequently experience large daily swings.
In the bond market, movements from the prior day also reversed. Longer-term yields declined, while shorter-term yields rose after a report indicated that U.S. retail sales held steady last month, defying economists’ expectations for a decline. The yield on the 10-year Treasury dropped to 4.17% from 4.23% late Monday. This decline from April’s 4.70% high has significantly boosted stock prices.
The drop in yields is attributed to rising expectations that inflation is slowing enough to prompt the Federal Reserve to start cutting interest rates soon. The Fed has maintained its main interest rate at its highest level in over two decades to cool the economy just enough to control inflation. However, stronger-than-expected retail sales data may cause Fed officials to reconsider, as robust economic activity could sustain upward pressure on inflation. Despite this, traders still see a 98% probability of the Fed cutting its main interest rate in September, up from a 70% probability a month ago, according to CME Group data.
The Federal Reserve faces risks on both sides as it navigates its current policy stance. The central bank aims to ease its high-interest rate policy at precisely the right time to avoid triggering a recession or reigniting inflation. Tuesday’s retail sales data indicates that the economy remains resilient, posing a challenge for the Fed’s timing.
Globally, stock market performances were mixed. European indexes were generally lower, while Asian indexes showed varied results. A notable mover was Hong Kong’s Hang Seng index, which dropped by 1.6%.
As Wall Street continues its upward trajectory, investors remain watchful of both the positive earnings reports and the broader economic signals that could influence future market movements. The interplay between corporate performance, economic indicators, and central bank policies will likely shape the market’s path in the coming months.
Featured Image: Freepik @ wirestock
