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U.S. stocks extend rally; investors bet Fed will pause rate hikes

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By Shristi Achar A and Noel Randewich

(Reuters) – U.S. stocks rallied on Monday, putting the S&P 500 within striking distance of its highest close since April 2022, and Oracle hit a record high ahead of quarterly results as investors awaited inflation data and the Federal Reserve’s interest rate decision this week.

Lifted by gains in market heavyweights including increases of about 2% in both Amazon and Tesla , the S&P 500 has now recovered over 20% from its October 2022 lows. Some investors say Wall Street is the midst of a bull market.

“The further out the October lows get in the rear view mirror, the more confident investors become. Have investors become more complacent? They probably have, and that’s actually a good sign,” said Jake Dollarhide, chief executive officer of Longbow Asset Management in Tulsa, Oklahoma.

The S&P 500 was up 0.48% at 4,319.38 points. A close at that level would mark the benchmark’s highest close since April 21, 2022.

The Nasdaq jumped 1.01% to 13,392.99 points, while the Dow Jones Industrial Average was up 0.19% at 33,940.17 points.

The U.S. Labor Department’s consumer price index reading on Tuesday is expected to show inflation cooled slightly in May, with core prices likely remaining sticky. Tuesday is also first day of the Fed’s two-day meeting.

Traders see a 76% chance of the central bank holding rates at the 5%-5.25% range on Wednesday, while pricing in a 71% chance of a rate hike in July, according to the CME Fedwatch tool.

“There’s a chance that the Fed will stay data dependent. So we don’t necessarily think that a rate hike is off the table in the future, but for the near term we just see them staying steady,” said Dylan Kremer, co-chief investment officer of Certuity.

A rally in megacap stocks, better-than-expected quarterly earnings and hopes that the Fed might be nearing the end of its monetary tightening cycle have lifted indexes in recent weeks.

The rally has recently widened to include more economically sensitive sectors such as energy and industrials, as well as small-cap stocks, as data continues to show a resilient U.S. economy despite higher interest rates.

Goldman Sachs on Friday raised its year-end price target for the benchmark S&P 500 to 4,500 from 4,000, citing the broadening of the market rally.

The CBOE volatility index edged up to 14.51, its highest since last Tuesday.

Oracle jumped as much as 7% to an all-time high after J.P. Morgan hiked its price target ahead of the cloud and enterprise software firm’s fourth-quarter results later in the day.

Of the 11 S&P 500 sector indexes, six rose, led by information technology, up 1.4%, followed by a 1.36% gain in consumer discretionary.

Nasdaq Inc slumped 11% after the exchange operator said it would buy software firm Adenza for $10.5 billion, which analysts called an expensive bet.

Biogen rose 1.3% after a U.S. FDA panel of advisers unanimously backed its Alzheimer’s drug, Leqembi, raising expectations that a traditional approval for the treatment might not come with major new safety warnings.

Broadcom Inc jumped 5.8% after Reuters reportedthe chipmaker was set to gain conditional EU antitrust approval for its $61 billion proposed acquisition of cloud computing firm VMware. That helped lift the Philadelphia semiconductor index 2.9%, bringing its gain in 2023 to 43%.

Advancing issues outnumbered falling ones within the S&P 500 by a 1.3-to-one ratio.

The S&P 500 posted 17 new highs and 3 new lows; the Nasdaq recorded 93 new highs and 61 new lows.

(Reporting by Shristi Achar A and Sruthi Shankar in Bengaluru and by Noel Randewich in Oakland, Calif.; Editing by Vinay Dwivedi, Sriraj Kalluvila and David Gregorio)

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