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Wall Street gains as Powell strikes a dovish tone
US equities closed broadly higher on Tuesday, as Fed Chairman Jerome Powell struck a dovish tone in the remarks he made to reporters. Brent (oil) traded 0.3% lower, with the current price per barrel sitting at $86.35. Spot gold fell 0.2%, with the current price per ounce standing at $2326.58. Volatility, as measured by the VIX index, decreased by 1.6% to $12.03.
On Tuesday, the S&P 500 reached a milestone, closing above 5,500 for the first time, buoyed by a surge in Tesla's stock and optimism over potential interest rate cuts following Federal Reserve Chair Jerome Powell's positive remarks on inflation progress. The index closed at 5,510.65, up 0.7%, marking its 32nd record close this year. The Dow Jones Industrial Average increased by 147 points (0.4%), while the Nasdaq rose 0.7% to an all-time high of 18,029.18. Powell acknowledged significant progress in reducing inflation but emphasized the need for more sustained improvement before considering rate cuts.
Consequently, fixed-income traders now predict a 64% chance of a rate cut in September, up from 61% last week. This anticipation was fueled further by a rise in job vacancies, which reached 8.14 million in May. Tesla ( shares soared 10% after it reported better-than-expected Q2 deliveries, and Paramount Global's stock jumped nearly 8% on speculation of a potential bid by billionaire Barry Diller. Conversely, Boeing's stock declined nearly 1% due to pending legal issues, and Polestar Automotive fell over 1% following a reported Q1 operating loss.
The ASX 200 decreased by 0.42% on Tuesday, with Materials (-0.60%), Utilities (-0.01%), Financials (-0.44%), Info Tech (-0.26%) and Health Care (-0.33%) all closing lower. Commodity markets also ended the day broadly lower, with Aluminium (-0.28%), Nickel (-0.20%) and Zinc (-0.26%) experiencing losses, whilst Iron ore (0.3%) and Copper (0.31%) saw gains.
In other news, Mitsubishi signs MOU with Chalice Mining, APA Group expects $145m non-cash impairment to Moomba pipeline, and Sayona Mining appoints ex-Adani exec as new CEO (Source: AFR)
Chart of the day
Today's chart shows the returns of major asset classes in Australia in Financial Year 2024. All asset classes have seen solid returns in FY24, with property and international equities being the pick of the bunch. Despite the high levels of inflation, many of these asset classes have still experienced positive real rates or inflation adjusted rates of return.
The main way to protect oneself from inflation is to own assets, which tend to appreciate in periods of high inflation. This is why inflation is a significant driver of wealth inequality, with lower income households finding it increasingly hard to accumulate assets, whereas incumbent asset holders become increasingly wealthier.
Source: Livewire, AMP
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