Bulls Push Wall Street To Record Highs On Declining Inflation; Tech, Real Estate, Small Caps Surge Ahead Of Fed Meeting: What's Driving Markets Wednesday?

A lower-than-expected inflation report for May ignited a bullish frenzy on Wall Street, with investors increasing their bets on rate cuts, bolstered by growing confidence that the Federal Reserve will ease its policy stance later this year as price pressures trend towards the 2% target.

The Consumer Price Index (CPI) data revealed cooler-than-anticipated monthly and annual inflation rates for both headline and core items.

This report arrives just ahead of the highly anticipated Federal Open Market Committee (FOMC) meeting, which will commence at 2:00 p.m. ET today.

The implied probability of a rate cut by September has surged to 72%, up from 54% before the inflation report. Fed futures now indicate a 55 basis points reduction (equivalent to two rate cuts) by year-end.

In response to rising expectations for rate cuts, traders quickly pivoted to riskier assets.

The tech-heavy Nasdaq 100 climbed 1.4% to over 19,400 points, setting new record highs. The S&P 500 Index increased by 1.1% to surpass 5,400 points, also achieving fresh all-time highs.

Blue-chip stocks saw a modest rise of 0.2%, but the standout performance came from small caps. The iShares Russell 2000 ETF IWM surged 2.7%, marking its best session since mid-December 2023.

Treasury yields plummeted across the board, with the 2-year yield dropping 15 basis points to 4.68%. Long-dated yields also declined by approximately 10 basis points, propelling the iShares 20+ Year Treasury Bond ETF TLT up by 1.6%, its strongest one-day performance since early February 2024.

Industries sensitive to interest rates saw significant gains. The SPDR S&P Homebuilders ETF XHB and the SPDR S&P Regional Banking ETF KRE soared 4.6% and 3.5%, respectively.

Precious metals also rallied on the back of lower yields and a weakening dollar, with gold rising 0.8% and silver surging 2.8%.

Cryptocurrencies experienced sharp rallies driven by the risk-on sentiment. Bitcoin BTC/USD jumped 3.6% to $69,800, while the more speculative Dogecoin DOGE/USD surged over 8% on the day.

Wednesday’s Performance In Major US Indices, ETFs

According to Benzinga Pro data:

• The SPDR S&P 500 ETF Trust SPY was 1.1% higher to $542.76.
• The SPDR Dow Jones Industrial Average DIA was 0.2% higher to $388.81.
• The tech-heavy Invesco QQQ Trust (ARCA: QQQ) was 1.4 higher to $474.65.
• Sector-wise, the Technology Select Sector SPDR Fund XLK outperformed, up by 2.6%, while the Energy Select Sector SPDR Fund XLE lagged, down 0.8%.

Wednesday’s Stock Movers

• Apple Inc. AAPL rose 4.7%, surpassing Microsoft Corp. MSFT as the world’s biggest company.
• Tesla Inc. TSLA rallied over 4%, following Cathie Wood’s bullish projection on the EV maker.
• The top performers among real estate stocks were Zillow Group Inc. Z, eXp World Holdings Inc. EXPI and Redfin Corp. RDFN, with gains of 13.7%, 11% and 9.4%, respectively.
• Among the subset of stocks exposed to the office and commercial real estate sector, SL Green Realty Corp. SLG and Vornado Realty Trust VNO rose 8.3% and 8%, respectively.
• Within the regional bank industry, First Foundation Inc. FFWM and Western Alliance Bancorp. WAL rose the most, up 7.5% and 7%, respectively.
• Caseys General Stores Inc. CASY skyrocketed over 17% in reaction to stronger-than-expected quarterly earnings and revenue.
• Other stocks reacting to company earnings are Oracle Corp. ORCL up 12.7%, Autodesk Inc. ADSK up 5.3%, Rubrik Inc. RBRK down 4.9%.
• Companies set to report their earnings after Wednesday’s close are Broadcom Inc. AVGO, Dave & Busters Entertainment Inc. PLAY, and Oxford Industries Inc. OXM.

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Image generated using artificial intelligence via Midjourney.