- Alphabet and Apple shares rallied after reports of a looming AI deal between Google and Apple.
- Tesla shares rose after the company promised to increase the price of some of its vehicles.
- There was caution as investors geared up for the upcoming FOMC meeting.
Equities closed Monday in the green after a rally in mega-cap stocks like Alphabet and Tesla. However, there was caution as investors looked forward to the FOMC policy meeting, which will affect rate cut expectations.
The rally in mega-cap stocks came due to several factors. However, the main one was AI optimism. Notably, Nvidia soared during the session as the company started its yearly developer conference. Consequently, there was a lot of enthusiasm in the market as investors expected new chips and developments in AI.
Elsewhere, Alphabet and Apple shares rallied after reports of a looming deal between Google and Apple involving AI. Apple plans to add Google’s Gemini AI engine to the iPhone. Such a deal would widen Google’s AI consumer base, as the company would offer its services to iPhone users.
Investors are getting more excited about the future as AI gains a larger audience. Moreover, the sector constantly develops and improves as companies compete to offer the best services.
Meanwhile, Tesla shares rose after the company promised to increase the price of some of its vehicles in parts of Europe.
Despite the optimism in the market, there was caution as investors geared up for the upcoming FOMC meeting. There is a wide expectation that the Fed will hold rates where they are currently. Meanwhile, there is also speculation that policymakers will be less dovish than they were a week ago.
Over a week ago, Powell made a dovish testimony before Congress that pushed equities higher. He confirmed that the Fed would cut rates by the end of 2024 as there were signs that inflation was declining. However, after this speech, economic data showed a different picture of persistent inflation.
Fed policy outlook (Source: Bloomberg)
As a result, the market rushed to lower bets for rate cuts, and the outlook shifted. The likelihood of a June cut is now below 50%. Additionally, the data increased speculation that the Fed would be hawkish at this week’s policy meeting.
A hawkish tone at Wednesday’s meeting would weigh heavily on equities as it would mean higher rates for longer. Moreover, it would mean fewer rate cuts in 2024. Already, Goldman Sachs expects 3 cuts, down from 4 when the year began.
