Wall Street ends higher as investors juggle Fed nerves with AI enthusiasm

The main indices on Wall Street closed higher on Monday, with megacap growth stocks like Alphabet and Tesla bolstering a rebound in the technology-heavy Nasdaq, while investors also awaited the US Federal Reserve’s (Fed) meeting this week.
Alphabet, Google’s parent company, provided a significant boost to the market following a media report suggesting that Apple is in talks to integrate Google’s Gemini AI engine into the iPhone. This bolstered the communication services sector, which saw nearly a 3% increase, leading gains among the 11 major S&P 500 sectors and reaching its highest level since September 2021.
Tesla shares closed up 6.3%, leading in percentage gains on the S&P 500, after the electric carmaker announced plans to raise the price of its Model Y electric vehicles (EVs) in parts of Europe. Nvidia shares gained 0.7% but closed well below their session high. The artificial intelligence (AI) powerhouse commenced its annual developer conference as investors awaited new chip announcements from CEO Jensen Huang.
According to Lindsey Bell, chief strategist at 248 Ventures in Charlotte, North Carolina, investors were torn between enthusiasm for AI prospects in the technology sector and concerns ahead of the Fed’s policy update on Wednesday. “This market really wants to hold onto the momentum trade, but what’s weighing on investors’ minds is the Fed’s actions this week,” LN24 SA’s Tatenda Belle said.
“The market is comfortable with the possibility of the first rate cut coming in June or July, but there’s not complete confidence in this scenario. The question is whether it might be pushed further out.”The Dow Jones Industrial Average rose by 75.66 points, or 0.20%, to 38,790.43, the S&P 500 gained 32.33 points, or 0.63%, to 5,149.42, and the Nasdaq Composite gained 130.27 points, or 0.82%, to 16,103.45.
The Nasdaq snapped three consecutive days of losses.
The Philadelphia Semiconductor index relinquished gains to end the day virtually unchanged, while the S&P 500 technology index finished up 0.5%. Among the S&P’s 11 major sectors, the weakest performers were rate-sensitive real estate and healthcare, both declining by 0.02%.
Stronger-than-expected inflation figures prompted traders to reconsider when and by how much policymakers might lower rates this year, with traders reducing the probability of a June rate cut to around 51% from about 71% a week ago, according to the CME FedWatch Tool.
If the Fed were to adopt a hawkish tone at its policy meeting on Wednesday, this could exert pressure on stocks. “The fact that we’re up today gives investors an opportunity to take profits before the Fed meeting, which is more likely to disappoint than support the recent rally in risk assets,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute in Charlotte. Goldman Sachs announced on Monday that they now expect three interest rate cuts in 2024, down from the four expected earlier, following firmer-than-expected inflation figures.
“With the market near recent highs, it’s challenging to envision what could provide an upside spark from here. It’s not difficult to imagine the factors that could lead to disappointment,” said Samana, citing the Fed’s stance and high valuations for tech stocks. The exchange operator stated that it resolved an issue related to connectivity and stock orders that had affected early trading for more than two hours on Monday. US-listed shares of Xpeng rose by 1.9% following its announcement of plans to launch a more affordable EV brand amidst intense price competition.
Boeing closed down by 1.5% after reports that a federal grand jury in Seattle issued a subpoena to the aerospace company regarding the Jan 5 midair blowout of a Boeing door plug on an Alaska Airlines flight. Super Micro Computer, which joined the S&P 500 on Monday, surrendered earlier gains to close down by 6.4%, marking the largest percentage decline of the day in the benchmark index. However, the stock, which has surged significantly recently on expectations of benefiting from AI, is still up by more than 252% year-to-date.
Advancing issues outnumbered decliners by a ratio of 1.17-to-one on the New York Stock Exchange, with 224 new highs and 58 new lows. On the Nasdaq, 1,905 stocks rose while 2,400 fell, with declining issues outnumbering advancers by about a ratio of 1.26-to-one. The S&P 500 recorded 41 new 52-week highs and one new low, while the Nasdaq registered 102 new highs and 131 new lows. On US exchanges, 11.16 billion shares changed hands, compared with the 12.41 billion average over the last 20 sessions.