S&P 500, Nasdaq, and Dow close at historic levels
U.S. stocks closed at all-time highs Tuesday, as investors looked past fresh concerns over the strength of the economy and focused instead on the potential for rate cuts and resilient corporate performance. The S&P 500 rose 0.27% to finish at 6,512.61, while the Nasdaq Composite gained 0.37% to end at 21,879.49, setting a new intraday record in the process. The Dow Jones Industrial Average added 196.39 points, or 0.43%, to close at 45,711.34, helped by a strong rally in UnitedHealth shares.
The market’s gains came despite a major downward revision to U.S. employment data. The Bureau of Labor Statistics reported that payroll gains for the 12 months through March were overstated by 911,000 jobs — the largest revision since 2002. The data, while backward-looking, added weight to the view that the labor market is cooling faster than previously believed.
Job revisions raise recession and rate cut questions
“I think the economy is weakening,” JPMorgan Chase CEO Jamie Dimon said in an interview with CNBC following the report. “Whether it’s on the way to recession or just weakening, I don’t know.” While the revised data didn’t trigger an immediate selloff, it could influence the Federal Reserve’s thinking ahead of its next meeting.
Chris Zaccarelli, chief investment officer at Northlight Asset Management, noted that continued deterioration in the labor market may increase pressure on the Fed to cut rates sooner, though he warned that it could also cast doubt on the strength of the recent market rally.
Chip stocks retreat as inflation data looms
Broadcom and Nvidia have been key drivers of the Nasdaq’s recent surge, with Broadcom posting a nearly 13% gain over the past week. However, Broadcom shares pulled back more than 2% during Tuesday’s session, paring some of its recent strength.
Investors are now focused on two key inflation reports due this week, which could shape the Fed’s next move. The August Producer Price Index (PPI) report is set for release Wednesday, followed by the Consumer Price Index (CPI) on Thursday. Any upside surprise in inflation data could challenge the current outlook for rate cuts and raise fears of stagflation.
“If the CPI shows a worsening trend of higher inflation on Thursday then the market will begin worrying about stagflation,” said Zaccarelli. “The bull market has been extremely resilient this year, but we could be approaching an inflection point where it is tested again.”
Markets weigh economic signals and Fed policy
Despite signs of economic cooling, Wall Street continues to bet on the Fed’s willingness to adjust rates in response to slower growth. The recent rally, especially in tech and growth names, has been fueled by expectations that monetary policy will turn more accommodative in the months ahead.
However, this optimism now faces a critical test as inflation data and economic indicators begin to diverge. While jobs data suggests weakness, any sign that prices are rising faster than anticipated could complicate the Fed’s strategy and introduce new volatility to the market.
