Stocks recorded strong gains this week, led by a rally in technology shares as the signing of a peace deal between the United States and Iran pushed oil prices lower and helped calm fears of interest rate hikes.
For the week, the Dow Jones Industrial Average gained 1.41 percent to close at 51,564. The S&P 500 closed 1.44 percent higher to 7,500, below the high reached earlier in the week. The Nasdaq Composite fared much better, up by 2.74 percent, while the Russell 2000 gained 2.01 percent.
The Chicago Board Options Exchange Volatility Index closed the week at 16.40, down by 15.64 percent.
Stocks opened the shortened week sharply higher on June 15 amid lower oil prices, after the United States and Iran reached an agreement on the previous day to end the conflict in the Middle East and reopen the Strait of Hormuz by the end of the week. West Texas Intermediate crude plunged more than 5 percent to around $80 per barrel, close to a two-month low, paving the way for the easing of inflationary pressures that cast a veil of uncertainty over the United States and the global economies.
“Sunday’s news of the agreement between the U.S. and Iran is a breakthrough and a positive for markets, as the saber-rattling and back-and-forth in the negotiations has only caused additional uncertainty and volatility for markets,” Michael Landsberg, chief investment officer of Punta Gorda, Florida-based Landsberg Bennett Private Wealth Management, told The Epoch Times.
He said that while the deal may still face issues over the next couple of months, especially regarding the major “sticking point” of removing Iran’s nuclear material, reopening the Strait of Hormuz will likely lower oil prices and ease inflation.
Lower inflation, in turn, could pave the way for monetary easing, a tailwind for risky assets, as it adds liquidity to the market and justifies higher market valuations.
Equity purchasing was steady throughout the trading session, with all major averages ending in the green. The Nasdaq surged by 3.07 percent, and the S&P 500 rose by 1.55 percent. The Dow and the Russell 2000 posted moderate gains.
SpaceX was a big winner of the day, surging by 19.6 percent as investors chased shares of the largest IPO ever despite astronomical valuations.
The rally in stocks paused on June 16 amid profit-taking in the hot tech sector, with the Nasdaq ending deep in the red, down by 1.15 percent. Nvidia, Marvel, Microsoft, and Oracle fell by 2.37 percent, 9.78 percent, 1.48 percent, and 2.22 percent, respectively.
The S&P 500 and Russell 2000 fared slightly better, down by 0.57 percent and 0.71 percent, respectively.
The Dow managed to stay in positive territory, up by 0.64 percent, thanks to strength in financial stocks, with shares of JPMorgan Chase, American Express, and Goldman Sachs up by 3.68 percent, 1.69 percent, and 1.35 percent, respectively.
Another factor contributing to the pause in the tech rally was investor anxiety over the Federal Reserve meeting the next day, as markets were uncertain about the direction of monetary policy under new Fed Chair Kevin Warsh.
The central bank kept interest rates steady on June 17 as markets expected, but its board members remained divided over the next move.
Eighteen of the 19 Federal Open Market Committee members provided forecasts for policy and the economy, while Warsh, the chair, decided not to. Among those 18 members, nine project at least one rate hike this year, according to the Dot Plot.
“It’s a hold or hike Fed now. Rate cuts are off the table,” Heather Long, chief economist at Navy Federal Credit Union, told The Epoch Times.
Long noted that the Federal Reserve’s latest policy statement is the shortest since the Alan Greenspan era—totaling 130 words compared with the typical 400—and lacks forward guidance on the direction of interest rates.
“This will put more pressure on Kevin Warsh’s press conferences and Fed leader speeches. It’s also stunning to see Fed leaders projecting almost a full percentage point higher inflation by the end of 2026,” she said.
Adding to concerns over inflation heading yet higher was another strong report on the economy, released several hours before the Federal Reserve meeting. Retail sales surged by 6.9 percent year over year in May, marking a sharp acceleration from April’s 4.8-percent increase, according to the Census Bureau.
The prospect of inflation and interest rates heading north came as a disappointment to Wall Street bulls that have been chasing after risky assets despite stretched valuations—SpaceX’s astronomical valuation being a prime example—and some headed for the exits.
At market close on June 17, all major equity averages were in the red, led by the tech-heavy Nasdaq, down by 1.34 percent, followed by the S&P 500, down by 1.21 percent. The Dow Jones Industrials and the Russell 2000 declined by 0.98 and 0.72 percent, respectively.
The equity bulls returned on the morning of June 18 as falling oil prices helped cast away fears of rising inflation and interest rates. Crude oil dropped below $75 per barrel, the lowest level since early March, as the United States and Iran officially signed an agreement to end hostilities that had disrupted oil supplies.
The rally was led by tech and small-cap stocks, with the Nasdaq and the Russell 2000 gaining 1.91 percent and 2.08 percent, respectively. The S&P 500 and the Dow posted moderate gains of 1.08 percent and 0.14 percent, respectively.
James Demmert, chief investment officer of New York City-based Main Street Research, remains optimistic for equities due to lower oil prices and strong artificial intelligence (AI) capital expenditure.
He expects inflation to soften as oil prices decline.
Meanwhile, Demmert noted that companies are still investing significantly in AI while holding onto their employees. According to the Census Bureau, the economy posted strong job gains in four of the first five months of the year, with February being the only month to record job losses.
“We are in an AI-powered era of higher productivity and corporate profit growth, which is at the center of our bullish stance on stocks, as we expect the S&P 500 to reach 8,100 by year-end,” he told The Epoch Times.
