- Shares of major technology companies like Apple and Microsoft rose over 1% on Monday.
- Last week, Apple announced new AI features to increase the appeal of the iPhone.
- Retail sales data on Tuesday showed a slowdown in economic activity, further supporting the market’s outlook for two cuts.
Equities soared on Monday, with the S&P 500 and the Nasdaq reaching record highs. This increase came from technology stocks, which rallied on AI optimism. At the same time, investors were awaiting more clues from policymakers and economic data on the outlook for US rate cuts.
S&P 500 index (Source: Bloomberg)
Shares of major technology companies like Apple and Microsoft rose over 1% for the day, sending equities to new all-time highs. The rally continued from last week when Apple announced new AI features to increase the appeal of the iPhone.
Meanwhile, investors were still absorbing data from last week, which revealed softer-than-expected consumer and wholesale inflation. This led to a surge in expectations of a rate cut in September. Although the Fed forecasted only one rate cut this year, markets have held on to hope that the central bank will cut twice. Still, policymakers maintained on Monday that there would only be one cut in December.
Meanwhile, retail sales data on Tuesday showed a slowdown in economic activity that further supports the market’s outlook for two cuts. Sales rose by a smaller-than-expected 0.1% in May, and the value for the previous month was revised lower to show a decline of 0.2%. This is a sign that consumers spent less than expected in May. Moreover, it shows a drop in demand that will likely put more pressure on the US central bank to start cutting interest rates. Investors will now await PMI data for more clues on the outlook for rate cuts.
Equities have made several record highs in the past week due to AI optimism. However, the outlook for US rate cuts has kept shifting, and there is uncertainty in the market. At a time when data is showing a downtrend in the economy, policymakers have remained cautious and even hawkish, projecting only one rate cut.
Meanwhile, markets have remained more dovish about the outlook. Therefore, it will take more economic reports from the US to get a clear picture of what the Fed might do in the coming months. For now, the speculation will continue, and rate-cut bets will likely keep fluctuating.
