FX.co ★ Market's shining stars: S&P 500 and Nasdaq hit new highs, Nvidia continues to rally

The S&P 500 and Nasdaq hit new records on Tuesday, led by Nvidia shares, after Federal Reserve Chairman Jerome Powell told lawmakers that positive economic data would strengthen the case for lower interest rates.

AI chipmaker Nvidia (NVDA.O) rose 2.5%, offsetting losses in other chipmakers.

Microsoft (MSFT.O) shares fell 1.4%, while Tesla (TSLA.O) rose 3.7%, bringing the total gain for 2024 to 5%.

It was the sixth straight record close for the Nasdaq and the fifth straight for the S&P 500, as optimism about AI developments in corporate America outweighed uncertainty about the Fed's rate-cutting policy.

In his testimony before Congress, Powell said that while inflation is still above the 2% target, it has improved in recent months and "further positive data" would strengthen the case for a rate cut.

However, the Fed chief stressed that he was not giving any guidance on the timing of possible future action.

Markets continued to price in a 50 basis point cut this year, pricing in a nearly 72% chance of a 25 basis point cut by the Fed's September meeting, according to CME's FedWatch data. That's up from less than 50% a month ago.

"The U.S. economy and labor market have shown remarkable resilience through 2024, and our core forecast does not include a near-term recession. Instead, we expect modest growth for the rest of this year and into next year," said Bill Northey, senior investment director at U.S. Bank Wealth Management.

Inflation data is also due out this week, including the consumer price index on Thursday and the producer price index on Friday.

JPMorgan (JPM.N) and Wells Fargo (WFC.N) shares rose more than 1%, while Citi (C.N) shares rose 2.8%. The three banks will report their quarterly results on Friday, kicking off the second-quarter earnings season.

Analysts expect S&P 500 companies to increase their combined earnings per share by 10.1% in the second quarter, compared with 8.2% growth in the first quarter, according to LSEG I/B/E/S.

Despite the S&P 500's gains, declining stocks outnumbered advancing ones by 1.5 to 1.

On Wall Street, the Dow Jones Industrial Average (.DJI) fell 52.82 points, or 0.13%, to 39,291.97, the S&P 500 (.SPX) rose 4.13 points, or 0.07%, to 5,576.98 and the Nasdaq Composite (.IXIC) added 25.55 points, or 0.14%, to 18,429.29.

Tempus AI (TEM.O) shares climbed nearly 4% after analysts at JPMorgan, Morgan Stanley and other major brokerages gave them positive ratings. However, the genetic testing firm, which derives some of its revenue from the artificial intelligence sector, has lost about 7% from its IPO price of $37 in June.

Trading volume on U.S. exchanges was below average, with 9.6 billion shares traded, well below the 11.6 billion share average over the past 20 trading days.

MSCI's global equity index remained in a narrow range and fell on Tuesday, while U.S. Treasury yields rose after Federal Reserve Chairman Jerome Powell said improving economic data would strengthen the case for lower interest rates, but did not specify when that might happen.

Traders now see a roughly 70% chance of the Fed cutting its first rate in September, down slightly from 71% the day before, according to CME's FedWatch tool.

The S&P 500 posted its fifth straight record close, while the tech-heavy Nasdaq hit its sixth straight record on Tuesday.

The MSCI World Share Index (.MIWD00000PUS) lost 0.31 points, or 0.04%, to 817.83, while Europe's STOXX 600 (.STOXX) closed down 0.9%.

Treasury Secretary Janet Yellen briefed lawmakers on Tuesday that high rental and housing costs continue to keep U.S. inflation elevated, but consumer prices should gradually ease as factors such as supply chain issues and labor market tightness ease.

Investors, given borrowing costs, were looking ahead to Thursday's consumer price report for a decline in inflation, which could give the Federal Reserve more room to cut interest rates.

Headline inflation is expected to slow to 3.1% in June, down from 3.3% in May, with core inflation holding steady at 3.4%.

After four days of declines, 10-year Treasury yields edged up slightly on Tuesday, helped by Powell's cautious remarks. Both long- and short-term yields also rose.

The 10-year Treasury yield rose 2.9 basis points to 4.298% from 4.269% late Monday. The 30-year yield rose 3.2 basis points to 4.49%.

The 2-year yield, which typically responds to interest rate expectations, rose 0.8 basis point to 4.6264% from 4.618% late Monday. In foreign exchange, the dollar strengthened as Powell gave no clear signal of an imminent rate cut despite acknowledging progress in reducing inflation.

The dollar index, which measures the dollar against a basket of currencies including the yen and the euro, rose 0.13% to 105.11. The euro, by contrast, slipped 0.07% to $1.0814.

The dollar strengthened against the Japanese yen, rising 0.29% to 161.28.

Oil prices fell on Tuesday after a hurricane that hit the key U.S. oil-producing region of Texas was less damaging than markets had expected, easing concerns about supply disruptions.

U.S. crude oil fell 1.12%, or 92 cents, to $81.41 a barrel, while Brent crude fell 1.27%, or $1.09, to close at $84.66 a barrel.

Gold prices were mixed, with spot gold up 0.22% to $2,364.08 an ounce after earlier declines.

In cryptocurrency, Bitcoin rose 2.92% to $57,901.01.