U.S. stocks climbed on Wednesday, buoyed by signs of easing inflation and the possibility of an interest rate cut by the Federal Reserve. The S&P 500 approached its previous record high, set six weeks ago, while the Nasdaq composite extended its record from the day before. However, a slowdown in consumer spending, likely due to fatigue from years of high inflation, tempered gains.
In morning trading, the S&P 500 was up 0.5%, the Nasdaq rose 0.5%, and the Dow Jones Industrial Average gained 0.3%.
The bond market provided relief, with Treasury yields easing, alleviating pressure on stocks. This shift in bond yields reflects increasing expectations among traders that the Federal Reserve may lower its main interest rate this year.
Stocks that typically benefit from lower interest rates led the market, with real estate and utility stocks seeing significant gains. Homebuilders also rose on hopes that lower rates would lead to more favorable mortgage terms.
The positive sentiment was supported by a report showing that while consumer prices in April were 3.4% higher than a year earlier, the rate of increase had slowed compared to March. This slowdown, following a string of higher-than-expected inflation reports earlier in the year, raised hopes that the Federal Reserve may intervene to support the economy.
However, a separate report showing flat retail sales in April raised concerns about a potential slowdown in consumer spending, which has been a key driver of economic growth. This development, along with other factors like rising delinquencies and slower wage growth, could pose risks to the economy.
Despite these challenges, the stock market remains near record levels, buoyed by hopes that the Federal Reserve can strike the right balance between curbing inflation and avoiding a recession.
In other news, manufacturing in New York state contracted more than expected, adding to concerns about the economic outlook.
On Wall Street, Petco Health + Wellness surged 12.3% after naming a new executive chairman. However, GameStop and AMC Entertainment, which had seen significant gains earlier in the week, fell sharply as momentum waned.
Overall, traders are increasingly betting on a Fed rate cut, with a nearly 93% probability of at least one rate cut this year.
In global markets, stocks were mixed, with Shanghai stocks falling 0.8% after China’s central bank decided not to change a key lending rate.
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