Stephen Culp
4 min read
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By Stephen Culp
NEW YORK (Reuters) -Wall Street rallied on Monday as prospects of the U.S. Federal Reserve cutting interest rates as early as July offset uncertainty about escalating turmoil in the Middle East.
All three major U.S. stock indexes closed sharply higher. Consumer discretionary stocks led the sector gainers, with a solid boost from Tesla.
"The rally is a bit surprising," said Jay Hatfield, CEO and portfolio manager at InfraCap in New York. "In a way, the U.S. attack puts an end to the uncertainty of whether the U.S. is going to attack."
"The market action is extremely bullish because this is the time frame in June when we're supposed to have a pullback," Hatfield added. "People do not want to sell in this market."
Fed Vice Chair Michelle Bowman said on Monday "it is time to consider adjusting the policy rate," as risks to the job market outweigh inflationary concerns related to tariffs. Chicago Fed President Austan Goolsbee said that thus far, tariffs have had a more modest economic impact than expected.
Financial markets are pricing in at least two 25-basis-point rate cuts before year-end. The first cut is widely expected to happen in September.
"I've been in the camp that the Fed probably would not move at all this year," said Paul Nolte, senior wealth advisor & market strategist at Murphy & Sylvest in Elmhurst, Illinois. "(Fed Chair) Powell’s ‘wait and see’ is probably not a bad tactic, but of course, the markets always love lower interest rates."
Tesla shares surged after the long-awaited launch of the company's robotaxi service in Austin, Texas. The electric vehicle maker's shares advanced 8.2%.
Israel continued to bombard Iran the day after the U.S. joined the war.
Still, oil prices tumbled after Iran's retaliation did not include action to disrupt oil and gas tanker traffic through the Strait of Hormuz. Tehran had warned it would close the Strait of Hormuz, a crucial oil shipping route.
"The markets are reading this as 'hey, we're successful,' we took out their nuclear capabilities and we were able to support any counter-strikes," Nolte said. "I think there was a lot of concern that Iran would do much more than it did."
On the economics front, S&P Global's advance "flash" purchasing managers' indexes (PMI) showed the U.S. economy is expanding at a slightly more robust pace than analysts anticipated. A separate report showed new home sales, while under pressure from elevated borrowing costs, posted an unexpected gain in May.
