US stocks close at highest level in a year after Fed decision

June 16, 2023 (MLN): The U.S. market benchmark index, S&P 500 and Nasdaq surged in yesterday's session to close at their highest level since May 2022, as the rally was fueled by economic data and the U.S. Federal Reserve nearing the end of its aggressive interest-rate hikes cycle.

S&P 500 is up about 14.86% year-to-date and the Nasdaq has climbed 37.57% year-to-date, fueled by signs of economic resilience, and investors' bets that interest rates are near their peak.

The U.S. decided to maintain the interest rate at 5-5.25% on Wednesday, for the first time in 15 months, after 10 consecutive rate hikes.

U.S. consumer price index (CPI) inflation data came in at only 4% for the month of May.

The CPI inflation data was lower than the previous month of 4.9% and below analysts’ expectations of 4.1%, indicating a moderation of inflationary pressures.

Notably, CPI in the last year, May 2022 stood at a high of 8.6% YoY, showing that the federal reserve with its fast-paced rate hikes and balance sheet reductions has been successful in curbing inflation to some extent.

CPI inflation has fallen from a peak of 9.1% in June 2022 to 4% in May 2023.

The economy has continued to generate strong monthly job and wage gains, with the U.S. non-farm payrolls (NFP) adding 339k jobs in the month of May.

NFP, which shows the number of jobs created in the U.S. excluding farm workers, added 149k more jobs (total 339k) than the market analysts' expectations of 190k jobs.

Data showed U.S. retail sales unexpectedly rose in May as consumers spent on a range of goods including vehicles. Another data set showed jobless claims were unchanged at a seasonally adjusted 262,0000 for the week ended June 10, but were above economists' forecast of 249,000 claims.

Additionally, import prices fell in May and the annual decrease was the sharpest in three years. That followed a report on Tuesday showing April headline inflation increased by less than expected.

Ross Mayfield, an investment strategy analyst at Baird said that "Due to softer inflation data earlier this week and resilient economic data after the Fed meeting, the market is rallying and yields are falling because investors don't believe the Fed is as hawkish as they presented," as Reuters reported.

"The market doesn't believe they have two more hikes in the chamber." he added.

According to the CME Fedwatch tool, traders see a 70.7% chance of a 25-basis point rate hike in July.

The S&P 500 ended yesterday’s session at 4,425.84 points, up by 26.76% from the lows in October 2022.

The Nasdaq ended yesterday’s session at 15,185.48 points, up by 45.45% from the lows in October 2022.

Volume on U.S. exchanges was relatively heavy, with 11.8 billion shares traded, compared to an average of 10.9 billion shares over the previous 20 sessions.

All 11 S&P 500 sector indexes rose on Thursday, led by the IT services industry index with a gain of 1.89%, followed by health care with a gain of 1.55%, and a 1.54% gain in communication services.

Apple rose 1.12% to mark the highest daily closing ever, while Microsoft surged 3.19%, breaking its previous all-time high in November 2021.

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