Macro

S&P, Nasdaq Hit Records; Bitcoin Up, Meme Stocks Down on 3.4% Inflation

Inflation aligns with forecasts, sparking Wall Street records and bets on Federal Reserve rate cuts by year-end.

By Athena Xu

5/15, 13:58 EDT
S&P 500
iShares 20+ Year Treasury Bond ETF
iShares 7-10 Year Treasury Bond ETF
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Key Takeaway

  • S&P 500 and Nasdaq 100 hit record highs amid expectations of Fed rate cuts, with inflation at 3.4% matching forecasts.
  • Bitcoin and precious metals surge, while meme stocks and major EV players face significant losses.
  • Rate-sensitive sectors like tech and real estate lead gains; Treasury yields and the U.S. dollar fall.

Inflation and Rate Cut Expectations Fuel Market Rally

The S&P 500 and Nasdaq 100 indices reached new record highs, buoyed by an inflation report for April 2024 that aligned with expectations at 3.4% year-on-year and retail sales data that came in cooler than anticipated. This combination of economic indicators has led traders to ramp up their bets on the Federal Reserve cutting rates, with market-implied probabilities suggesting over a 70% chance of a rate cut as early as September 2024. The anticipation has fully priced in two rate cuts of 25 basis points by the year's end, according to CME Group’s FedWatch Tool.

Treasury Yields and Dollar Decline

The 2-year Treasury yields saw a significant drop to 4.75%, falling by 7 basis points and moving below its 200-day moving average, reflecting the market's rate cut expectations. Concurrently, the U.S. dollar weakened against major currencies, notably losing 1% against the Japanese yen. This shift underscores the market's reaction to the Federal Reserve's potential easing of monetary policy in response to the inflation data and retail sales report.

Sector Movements and Commodities

The tech and real estate sectors, known for their sensitivity to interest rate changes, led the market rally. Homebuilders, as indicated by the iShares U.S. Home Construction ETF, and small caps, tracked by the iShares Russell 2000 ETF, were among the top performers. In the commodities market, gold and silver prices surged by 1.3% and 3%, respectively, while crude oil prices experienced a slight decline of 0.3%. This movement in commodities further reflects the broader market sentiment influenced by the latest economic reports and expectations for a softer monetary policy stance.