Key points:

  • Banking sector shares rose ahead of quarterly earnings.
  • Nvidia shares rose 2.5%, Microsoft shares fell 1.4% and Tesla gained 3.7%.
  • The Fed chief noted that inflation remains above target, but has been improving in recent months.

The S&P 500 and Nasdaq indices posted record closes on Tuesday, July 9. This growth was facilitated by expectations of easing monetary policy by the US Federal Reserve. Fed Chairman Jerome Powell’s speech to Congress, in which he noted “good” economic indicators, prompted buying of stocks.

The S&P 500 rose 0.07% to close at 5,576.98. The Nasdaq added 0.14% to 18,429.29. At the same time, the Dow Jones Industrial Average declined by 0.13%, closing at 39,291.97 points.

The banking sector opens the second reporting season

Shares of Nvidia, a maker of artificial intelligence chips, rose 2.5%, offsetting declines in other shares in the sector. Microsoft shares fell 1.4%, while Tesla, on the other hand, added 3.7%, increasing its annual growth to 5%.

The Nasdaq and S&P 500’s rise to record levels was the sixth in a row for the Nasdaq and the fifth in a row for the S&P 500. Investor optimism regarding the implementation of AI in the US corporate sector offset uncertainty about the pace of Fed rate cuts.

Banking stocks also posted gains, with JPMorgan and Wells Fargo up more than 1% and Citi up 2.8%. All three banks are preparing to release quarterly results on Friday, marking the start of second-quarter earnings season.

Tempus AI shares rose nearly 4% after JPMorgan, Morgan Stanley and other brokers gave it bullish ratings. Despite the rise, shares of the genetic testing company, which generates “intangible” revenue from its AI business, are still 7% below its June IPO price of $37.

It’s worth noting that trading volume on US exchanges was relatively low, with 9.6 billion shares traded, below the average of 11.6 billion shares over the previous 20 trading sessions.

Speech by the head of the Federal Reserve

Federal Reserve Chairman Jerome Powell testified before Congress, noting that while inflation continues to exceed its soft landing target of 2%, recent months have shown improvement. He also noted that improving economic data would support the case for a possible interest rate cut. At the same time, the head of the central bank emphasized that he was not giving explicit hints regarding the time frame for future actions.

According to CME’s FedWatch, markets expect interest rates to cut by 50 basis points this year, with about a 72% chance of a 25 basis point cut by the Fed’s September meeting, significantly higher than a month ago when the probability was less than 50%.

“The U.S. economy, and the labor market in particular, has shown significant resilience in 2024. Our base case suggests that recession is not the most likely outcome, but we expect modest growth next year,” said Bill Northey, senior investment officer at U.S. Bank Wealth Management.