U.S. stocks staged a strong recovery on Thursday, with the S&P 500 rising 80.48 points (1.08%) to 7,500.58 and the Nasdaq surging 496.28 points (1.91%) to 26,517.93. According to Reuters, the Dow Jones Industrial Average gained 72.15 points (0.14%) to 51,564.70, with every major index notching weekly gains. The market reversal was powered by sharp gains for big technology companies, with Intel surging 10.6% after President Trump announced the semiconductor giant will make chips for Apple in the U.S. Nvidia rose 3% and Micron Technology jumped 8.7%. The Philadelphia semiconductor index sharply outperformed with a 6.4% rally as Intel's shares jumped to a record high. Airlines also posted significant gains, with American Airlines up 3.7% and United Airlines rising 2.1%. Technology led sector gains with a 2.7% advance, followed by consumer discretionary at 1.8%, boosted by the travel segment as lower fuel prices supported cruise-line companies and airline stocks.
The Federal Reserve signaled a significant policy pivot, shifting from cutting interest rates to likely raising rates by the end of the year. As reported by Reuters, Fed Chair Kevin Warsh's indication that the central bank would provide less guidance on future policy moves and his stated focus on price stability has eased inflation fears. Traders are betting on a roughly 50% chance of a 25-basis-point rate hike as soon as September and a 20% probability for a 50-basis-point hike, according to CME Group's FedWatch tool. "Markets got spooked by Warsh yesterday essentially promising to contain inflation," said Tony Welch, chief investment officer at SignatureFD, but he pointed to easing oil prices and recent strength in earnings and economic data. "All together, the package of data is still supportive whether or not the Fed has become a little bit more hawkish." The Fed's stronger signal for an eventual rate hike prompted a jump in bond yields on Wednesday, but they eased on Thursday.
Oil prices experienced significant volatility following the United States and Iran signing an interim agreement that extends the April ceasefire by another 60 days to allow sides time to reach a final deal. According to Reuters, early in the session, oil prices had slid to their lowest levels since early March after the peace agreement. Brent crude settled 0.4% higher at $79.85 per barrel while U.S. benchmark crude fell 0.2% to $75.85 per barrel. The current deal waives sanctions against Iran and allows it to sell its oil freely, opening the Strait of Hormuz where a fifth of the world's oil supply is shipped. Rising energy costs have been putting pressure on inflation, with the average price of gasoline in the U.S. dipping below $4 a gallon but still 25% higher from a year ago. Despite Trump's threat to resume attacks if Iran failed to honor commitments, the first ships started sailing through the Strait of Hormuz.
Bond yields showed mixed movement following the Fed's policy signals. As reported by Reuters, the 10-year Treasury yield fell to 4.45% from 4.49% late Wednesday, while the 2-year Treasury yield dropped to 4.18% from 4.20% late Wednesday. The yield on the 2-year Treasury, which more closely tracks Fed action, declined following the central bank's dovish stance. Trading activity was significantly elevated with 33.59 billion shares changing hands on U.S. exchanges compared with the 21.83 billion average for the last 20 sessions, marking the once-in-a-quarter simultaneous expiry of derivatives contracts known as "triple witching." Advancing issues outnumbered decliners by a 1.72-to-1 ratio on the NYSE, with 286 new highs and 183 new lows, while the Nasdaq recorded 3,136 stocks rising and 1,773 falling.
With the market due to be closed on Friday for the Juneteenth holiday, the S&P 500 marked a 0.93% weekly gain compared with the Nasdaq's 2.43% advance and the Dow's 0.71% increase. The small-cap Russell 2000 index rose 2% and marked a record closing high. However, the S&P 500 software and services sector finished down 0.7% after falling to the lowest in more than two months, with Accenture tumbling 18% after trimming its annual revenue forecast. Kroger shares fell 8.4% after reporting lower-than-expected Q1 profit, while SpaceX lost 3.6% in its second straight day of declines. The market recovery reflects investor assessment of the Fed's more hawkish stance while maintaining confidence in economic fundamentals and the easing of geopolitical tensions through the Iran peace agreement.
