You could feel the shift from the jitters at the top of the week to the kind of momentum that carried US stocks higher by Friday. It was the Nasdaq, of course, and its AI darlings that did the heavy lifting. And they did so while the Fed was being hawkish and the greenback was on the upswing; then you had some de-escalation in the world and a softening in crude to clear the air.
Why the Nasdaq is in the driver’s seat
It all came down to who was calling the shots. Tech and chipmakers have been in control of the mood, with money flowing into AI and digital infrastructure even as the prospect of rates staying high lingers.
When the tape ran out, the Nasdaq Composite was up over 2.5%, well ahead of the pack. The S&P 500 made do with a 1% move to 7,500.58 and the Dow tacked on 0.7% to 51,564.70 – a no-brainer for those in favour of growth.
Risk on in a big way
The appetite for anything with a growth profile was on display in the new listings. SpaceX, for one, put in a 15% gain after a rousing start to the week. But there was some profit-taking before the weekend, and the stock was down 3.5% on Friday to close at $185.
Some let-up in the energy space
There was a release of pressure in the oil markets. With an interim deal between the US and Iran, we can expect the Strait of Hormuz to be open for business again, which has put to rest some of the fear of a long-running supply issue in a vital part of the world.
Crude wound down as the edge came off. You had Brent at $79.85 and WTI at $76.60. It’s a welcome change when you’re worried about an oil run-up stoking inflation, and it’s given equities a bit of a cushion.
Don’t think the geopolitical side of things is over, though. Some words from Vice President JD Vance have drawn attention to the fact that the current truce may not be as solid as it seems, and security in the region is still a question mark.
The Fed keeps a lid on things
The macro picture is what it is. The Fed held the line at 3.50%-3.75% but made it plain they are watching inflation. That’s enough to put the dollar index at a one-year high and make it clear that the cost of money isn’t going anywhere in a hurry.
Bonds saw yields come back down after the initial post-Fed pop. The 10-year is at 4.437% and the two-year, ever the policy vane, is 4.153%. Yet stocks moved up anyway, which says something about how much faith there is in the earnings coming from the tech side of the house.
In the numbers
If you look at the week as a whole, you see the rotation to growth. But if you want the day-to-day of it, here is how the tape read for the weekly close:
– S&P 500: roughly 1% to 7,500.58
– Nasdaq: in the 2.5% plus range
– Dow: 0.7% to 51,564.70
Then you have a separate snapshot from a session later in the week where traders were repositioning:
– Dow: 50,579.70 (0.58%)
– S&P 500: 7,473.47 (0.37%)
– Nasdaq: 26,343.97 (0.19%)
– Russell 2000: 2,869.23 (0.91%)
What to make of it
This week has made the pecking order in the market a little more obvious.
You could say the AI darlings are still in vogue with investors, who have put a premium on solid growth stories and let their macro worries be. With oil taking a hit, there’s less of an inflation overhang to worry about for now, which has made it easier to put money to work in risk assets even if the Fed isn’t in any hurry to ease up.
That’s what you’re seeing: equity multiples are holding up on the back of tech’s earnings promise while the old fears of energy-driven inflation have receded. The dollar is firm, sure, and that makes life harder for non-US earnings, but it hasn’t been enough to dethrone the homegrown tech leaders.
Momentum didn’t so much reverse as put on the brakes when US markets were shut for Juneteenth on Friday. How we head into next week will come down to the data, some policy cues, and whether the hot hands can keep leading without a clear shift in rates.
What comes next
We’re moving from price action to proof. It’s all about validation from here. Inflation numbers, the broader economic picture, and what companies have to say will tell us where the Fed is headed and if this AI run has legs.
Traders will be eyeing a few things in particular:
– New inflation data and where core pressures are heading
– A mix of high-frequency stats on growth and employment
– Word from the corporate side on margins and such
– A change in the way Fed officials are talking
– Headlines from the Middle East
It’s simple really. If you see that inflation is in check and growth is fine, the market can live with a higher-for-longer rate environment and still put a premium on the AI infrastructure plays. But if prices start to move again, you’ll see the headwind from the dollar and yields pick up, and risk appetite will wane outside of the big names.
Why the rally’s tone matters for 2024
Look at who’s in charge and you get the story. Tech and semis are still running the show because, to investors, AI is a way of life for earnings, not a fad. That kind of belief lets you put aside a hard line from the Fed and a strong greenback.
Then there’s the fact that oil has given up some ground – Brent at $79.85, WTI at $76.60. It’s a quiet form of support that has calmed some of the inflation jitters without the Fed having to make a move. Risk has been able to trade on better terms for it.
Risks that could reset sentiment
Don’t get it twisted, the risks are still there. The Fed is on guard and the dollar is at a one-year high. An upside surprise in the inflation prints could bring some quick volatility, especially for long-duration stocks.
And you can never count out geopolitics. Even though the Strait of Hormuz is open for business, the official word is that the peace in the region is thin. One hiccup and you could see energy and inflation concerns come back to roost.
Bottom line
This week was a case of AI heft and lower oil making up for a central bank that’s not exactly friendly. You had the Nasdaq put in some good work, the S&P 500 up to 7,500.58, and the Dow edging 0.7% to 51,564.70.
From here it’s about the numbers. If they fit the soft-landing bill and the corporates are in good shape, the AI trade will continue to drive Wall Street. If they don’t, the dollar, the Fed, and the world stage are there to put a damper on the party.
