[New York Stock Market] Rising Ahead of May Retail Sales... S&P Hits 30th Record High This Year

Tech Stock Rally Pushes S&P 500 to New High
May Retail Sales on May 18 in Focus

The three major indices of the U.S. New York stock market all closed higher on the 17th (local time). As investors closely watched the May retail sales data and remarks from Federal Reserve (Fed) officials, the S&P 500 index marked its 30th record high of the year. Optimism about the economy, improved corporate earnings, and expectations of interest rate cuts stimulated investor sentiment.

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On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow Jones Industrial Average rose 188.94 points (0.49%) from the previous trading day to close at 38,778.1. The large-cap-focused S&P 500 index gained 41.63 points (0.77%) to 5,473.23, and the tech-heavy Nasdaq index jumped 168.14 points (0.95%) to 17,857.02, setting new all-time highs once again.

By stock, technology shares rose across the board. U.S. electric vehicle maker Tesla surged 5.3%. Apple increased by 1.97%. Microsoft (MS) rose 1.31%, while Alphabet, Google's parent company, and Amazon gained 0.23% and 0.22%, respectively. U.S. semiconductor company Micron jumped 4.58% on news of a target price upgrade. Software maker Autodesk soared 6.48% after activist fund Starboard Value acquired $500 million worth of shares.

Greg Basak, CEO of AXS Investments, diagnosed, "We are seeing optimism about several factors that have been mixed for quite some time." He added, "Economic data has started to appear more consistent and stronger, showing signs of a resilient economy. There is definitely optimism and bullishness that the likelihood of interest rate cuts beginning has increased."

This week, investors' attention is focused on the May retail sales data. Retail sales for last month, to be released on the 18th, are expected to have increased by 0.3% compared to the previous month. Retail sales in April were flat compared to the prior month. If retail sales also fall short of expectations amid a slowdown in the U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) last month, the analysis that the U.S. economy is slowing down will gain traction. Retail sales are considered a barometer of the economy as they account for two-thirds of the U.S. economy.

Remarks from Fed officials are also continuing one after another. Last week, the Fed kept the benchmark interest rate unchanged at 5.25-5.5% at the Federal Open Market Committee (FOMC) meeting and reduced the number of expected rate cuts this year from three to one in the dot plot. With recent inflation indicators slowing, the market is expected to watch Fed officials' remarks closely for any changes in the interest rate path outlook.

On that day, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, reaffirmed the outlook for one rate cut this year. Harker said, "If everything goes as expected, one rate cut by the end of this year would be appropriate," adding, "If the data breaks in any way, there is a possibility of two rate cuts this year or no cuts at all. We will remain data-dependent."

Despite the Fed's forecast of one rate cut this year, expectations for two cuts are spreading in the market. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day priced in about a 61% chance that the Fed will cut rates by at least 0.25 percentage points at the September FOMC meeting. The probability of a 0.25 percentage point or more cut in November exceeds 74%.

James Demmert, Chief Investment Officer (CIO) of Main Street Research, said, "We expect the S&P 500 index to reach the 6,000 level by the end of the year," forecasting, "Improved corporate earnings and one or two rate cuts will boost stock prices."

The manufacturing business index for New York State in the U.S. East, released that day, continued to show contraction. According to the New York Fed, the Empire State Manufacturing Index for June recorded -6. Although this was an improvement from the market expectation (-12.5) and the previous month (-15.6), it remained below zero, indicating a contractionary phase in the economy.

Government bond yields are rising. The U.S. 2-year Treasury yield, sensitive to monetary policy, rose 8 basis points (bp) (1bp = 0.01 percentage points) from the previous trading day to 4.76%, and the U.S. 10-year Treasury yield, a global bond yield benchmark, increased 7bp to 4.29%. This was due to a flood of high-quality corporate bond issuances, including Home Depot, which caused Treasury prices to fall.

International oil prices rose on expectations of increased summer oil demand. West Texas Intermediate (WTI) crude oil closed at $80.33 per barrel, up $1.88 (2.4%) from the previous trading day, and Brent crude, the global oil price benchmark, closed at $84.25, up $1.63 (2%). Both marked their highest levels since April.