Futures have been moving back and forth between minor losses and gains, so Wall Street is on edge heading into Tuesday. All eyes are on the Fed for its first policy session under Warsh. The kind of momentum you see from AI and the way SpaceX has been running is at odds with the latest softness in oil and yields, which means we could see some rough trading in the S&P 500, Nasdaq and the Dow.
Fed focus resets risk appetite
With the Fed in session for the first time under Warsh, investors are rethinking their risk. Vested Finance says to expect policy rates to hold steady, but what will really drive the mood is the talk around inflation, the state of the economy and when we might see a cut.
‘We expect him to make it clear that a rate cut is on the table later in the year, as long as inflation and energy prices keep coming in line,’ says Nachiketa Sawrikar of Artha Global Multiplier. He sees a no-nonsense approach to taming inflation, with room to be flexible.
Central banks can breathe a little easier with fuel costs in check. The 10-year Treasury yield was 4.47 per cent, off from 4.48 per cent on Friday. As for 10-year notes, the yield came in at 4.4197 per cent – the lowest we’ve seen since May 12 – and was last at 4.471 per cent, down 1.4 basis points.
Futures signal a tug of war
You could call the pre-market numbers a whipsaw. S&P futures were 0.17 per cent in the red, the Dow 0.03 per cent and the Nasdaq 0.30 per cent. Traders are being careful as they weigh the Fed and the pullback in oil.
Then again, there are pockets of strength. Dow Jones Industrial Average futures put in a 0.11% gain, the Nasdaq 100 was up 0.28% and the S&P 500 was flat, or 0.056% higher. It’s a divided picture after a three-day run-up.
What powered Monday’s surge
Stocks had a good day in the previous session, helped by a slide in energy and a pick-up in AI. The S&P 500 put on 122.83 points to 7,554.29, a 1.7 per cent move. The Dow was 468.77 points, or 0.9 per cent, in the money at 51,671.03.
Tech was in the driver’s seat. The Nasdaq composite was up 795.10 points (3.1 per cent) to 26,683.94 and the Russell 2000 chipped on 21.10 for 2,965.09. With Brent crude down 4.8 per cent, the heavy users of fuel were in better spirits.
Year to date, the S&P 500 has 708.79 points, or 10.4 per cent, in the column. The Dow is up 3,607.74 (7.5 per cent), the Nasdaq 3,441.95 (14.8 per cent) and the Russell 2000 483.18 (19.5 per cent).
AI trade and SpaceX extend dominance
If you’re looking for the market’s centre of gravity, it’s still in the chips. You had some strong showings from the chipmakers: Micron put up 10.8 per cent and AMD was up 7. But it was Nvidia’s 3.5 per cent gain that moved the S&P 500 the most, what with its size and being the crown jewel on Wall Street.
Then there’s SpaceX, which is dictating the risk appetite. The stock has been on a tear, up 19.6 per cent in just its second day of trading to put the firm at over $2.1 trillion. It was a good sign for how much investors are after AI in the public markets. In pre-market you could see shares jump nearly 10% as the run went into a third day. All told, the AI powerhouse is up more than 50% since it went public and is well on its way to unseating Amazon for the No. 5 spot in market value.
Energy repricing reshapes the macro calculus
The pullback in oil is putting a new spin on things. For the first time in a while, U.S. gas is under $4 a gallon, which is a relief for consumers and takes some of the heat off politically.
It was a case of supply and demand on Monday when crude tumbled over $4 a barrel. Word came out that President Trump and Iran had put pen to paper on an end to their four-month stand-off, and with the Strait of Hormuz likely to be open for business again, sentiment turned.
Brent futures were at $81.15, down 2.4%, before edging to $80.89 – the softest we’ve seen since early March. WTI was in the same boat, at $78.53. A few banks have already ratcheted down their numbers in the wake of it.
Why the stakes are higher now
With the Fed in session and yields coming in, the new chair has to prove he can be credible. As Sawrikar put it, you have to show you can put a lid on inflation but still have room to make a cut down the road if you want to back the risk side of the market.
How he handles that will tell us if this AI fervor is here to stay or if it’s just another flash in the pan. Right now the market is all in on semis and the like, but they’re also eyeing energy for a read on where we’re headed.
Key things to watch today
Here is what traders are keeping an eye on:
– Warsh and his take on inflation
– Where we stand on rate cuts
– Whether SpaceX keeps up its pace
– Any action from the big three: Micron, AMD, Nvidia
– How Brent and gas are holding up against yields
– The U.S.-Iran deal
– Small caps and their response to cheaper oil
Bottom line
We’re opening on a mixed note Tuesday. The lower oil and yields are a plus, but we need to see what the Fed has to say. With futures in no mind of their own and AI running the show, don’t be surprised by some whipsaws.
If Warsh gives us some continuity and doesn’t put a damper on easing, you may see some breadth outside of the chip sector. Otherwise, it’ll be a narrow top and a bumpy ride.
