US stock indexes have risen, extending their recent run on expectations that the Federal Reserve will cut interest rates this year, while a drop in shares of Walt Disney following the company’s quarterly results limited their gains.
Walt Disney fell 8.4 per cent in early trading as a surprise profit in its streaming entertainment division was eclipsed by a drop in its traditional TV business and weaker box office.
Despite Disney’s drag, the three main US stock indexes were trading at their strongest level in more than three weeks after a weaker than expected labour market report last week fuelled bets that the US central bank will ease monetary policy this year.
The report and better than expected earnings reports have helped soothe jittery investors, who sent markets lower in April, on concerns that sticky inflation and a robust economy would prompt the Fed to keep rates higher for longer.
“The market is still pricing inflation will ultimately be conquered, maybe not down to 2.0 per cent, but certainly under 3.0 per cent. The central banks will win there and the cost will be a slower economy,” said Hal Reynolds, chief investment officer at Los Angeles Capital Management.
“That will happen sometime later this year or early next year and these rate cuts will come. But there is still a fair bit of noise. I don’t think things are much clearer today than they were two months ago.”
Traders anticipate rate cuts of 46 basis points (bps) from the Fed by the end of 2024, according to LSEG’s interest rate probabilities app, with the first pivot to rate cut priced in for September and another in December.
Meanwhile, Minneapolis Fed president Neel Kashkari said housing market strength and potentially stalled progress on inflation targets mean monetary policy may not be as tight as Fed officials think it is.
Ten of the 11 S&P 500 sectors rose, with consumer staples leading advances, up 0.8 per cent.
In early trading on Tuesday, the Dow Jones Industrial Average rose 60.27 points, or 0.16 per cent, to 38,912.54, the S&P 500 gained 8.89 points, or 0.17 per cent, to 5,189.63 and the Nasdaq Composite gained 20.85 points, or 0.13 per cent, to 16,370.09.
The earnings season has been largely supportive for markets.
Of the nearly four-fifth of the S&P 500 companies that reported first-quarter results through Friday, 76.8 per cent topped analysts’ profit estimates, as per LSEG data.
In a typical quarter, 67 per cent beat earnings estimates.
Nvidia fell 1.1 per cent after the Wall Street Journal reported that Apple was developing its own chip to run artificial intelligence (AI) software in data centres.
Apple gained 1.5 per cent ahead of an event later on Tuesday where it is expected to unveil new iPads.
Tesla fell 2.3 per cent after data showed the US car maker sold 62,167 China-made electric vehicles in April, down 18 per cent from a year earlier.
Palantir Technologies tumbled 13 per cent after the data analytics firm’s annual revenue forecast fell short of analysts’ estimates.
Advancing issues outnumbered decliners by a 2.69-to-1 ratio on the NYSE and a 1.54-to-1 ratio on the Nasdaq.
The S&P 500 posted 32 new 52-week highs and one new low while the Nasdaq recorded 74 new highs and 35 new lows.