[New York Stock Market] Rise on May Retail Sales Below Expectations... Nvidia Rises to No.1 in Market Cap

May Retail Sales Up 0.1% MoM
Investors Expand Rate Cut Bets
Semiconductor Stocks Rise... S&P and Nasdaq Hit New Highs Again

The three major indices of the U.S. New York stock market all closed higher on the 18th (local time). As the May retail sales data showed a slower-than-expected increase, expectations for an interest rate cut grew, boosting semiconductor stocks including AI leader Nvidia. Nvidia rose to become the company with the largest market capitalization, while the S&P 500 and Nasdaq indices once again hit record highs.

[Image source=Yonhap News]

On that day at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average, centered on blue-chip stocks, closed at 38,834.86, up 56.76 points (0.15%) from the previous trading day. The large-cap-focused S&P 500 index rose 13.8 points (0.25%) to 5,487.03, and the tech-heavy Nasdaq index gained 5.21 points (0.03%) to close at 17,862.23. With this, the S&P 500 and Nasdaq indices set their 31st and 20th all-time highs of the year, respectively.

By stock, Nvidia rose 3.51%, recording a market cap of $3.34 trillion, surpassing Microsoft (MS) to become the company with the largest market capitalization. Since its IPO, Nvidia's stock price has increased by 591,078%. Other semiconductor stocks also rose. Qualcomm jumped 2.19%, while TSMC and Micron increased by 1.34% and 3.8%, respectively.

Last month's retail sales increased at a slower pace than expected, strengthening expectations for an interest rate cut. According to the U.S. Department of Commerce on that day, May retail sales rose 0.1% month-over-month. This was below the market forecast (0.3%) and the revised April figure (-0.2%). The April retail sales growth rate was revised down from 0% to -0.2%. Among the 13 retail sales categories, five showed declines, including gas stations (-2.2%), furniture (-1.1%), and building materials, garden equipment, and supplies dealers (-0.8%).

The retail sales indicator is considered a pillar accounting for two-thirds of the U.S. real economy and is used to assess the overall economic trend. The slower-than-expected increase in consumer spending last month is expected to contribute to the recent easing trend in inflation indicators such as the Consumer Price Index (CPI) and Producer Price Index (PPI).

After the retail sales data release, investors have increased their bets on interest rate cuts this year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds futures market on that day reflected a 67.7% probability that the Federal Reserve (Fed) will cut rates by at least 0.25 percentage points at the September Federal Open Market Committee (FOMC) meeting, up from 61.5% the previous day. The probability of a 0.25 percentage point or more cut in November rose from 75.6% to 79.8%.

David Russell, Global Head of Strategy at TradeStation, said, "Expectations for rate cuts are spreading," adding, "Consumers and the overall economy are hitting a wall. The Fed's hawkish (monetary tightening preference) policies from 2022 to 2023 are finally taking effect."

U.S. industrial production for May, released that morning, showed a 0.9% increase month-over-month, exceeding both the expert forecast (0.3%) and the previous month's figure (-0.4%).

Fed officials continued their remarks that day. John Williams, President of the Federal Reserve Bank of New York, said in an interview with Fox Business, "There are very good signs that demand and supply are balanced," and "The inflation slowdown process is continuing and is expected to keep declining in the second half of this year and next year." However, he did not mention the timing of the first rate cut and explained that additional data is needed for a rate cut.

Earlier, the Fed reduced its rate hike forecast for this year from three times to once at the FOMC. Investors are trying to gauge hints about the future rate path through Fed officials' remarks amid inflation and retail sales slowing more than expected.

U.S. Treasury yields declined. The 2-year U.S. Treasury yield, sensitive to monetary policy, fell 4 basis points (1 bp = 0.01 percentage points) to 4.71%, while the 10-year U.S. Treasury yield, a global bond yield benchmark, dropped 5 basis points to around 4.22%.

International oil prices rose due to geopolitical concerns stemming from the Ukraine-Russia war and Middle East instability. West Texas Intermediate (WTI) crude oil closed at $81.57 per barrel, up $1.24 (1.5%) from the previous day, while Brent crude, the global oil price benchmark, rose $1.08 (1.3%) to $85.33.