The S&P 500 edged downward on Tuesday following remarks by Federal Reserve Chair Jerome Powell suggesting the necessity of sustained high interest rates. The broader market index declined by 0.21%, settling at 5,051.41 points, while the Nasdaq Composite experienced a marginal drop of 0.12%, closing at 15,865.25 points. In contrast, the Dow Jones Industrial Average saw a modest increase of 63.86 points, equivalent to 0.17%, culminating at 37,798.97 points, buoyed notably by gains in UnitedHealth shares. This positive momentum marked a departure from the Dow’s recent six-day streak of losses.
Market sentiment turned somewhat volatile during afternoon trading subsequent to Powell’s indications that the current economic policy stance ought to persist, particularly in light of persistent price pressures. Powell remarked on the recent economic indicators, noting robust growth and ongoing labor market strength, tempered by a lack of significant progress towards the 2% inflation target for the year.
Despite broader market fluctuations, UnitedHealth’s robust performance, with shares rallying over 5% on the back of impressive first-quarter revenue figures, provided a notable boost to the Dow. This surge in UnitedHealth outweighed the drag caused by Johnson & Johnson, another Dow component, which experienced a decline of around 2% following mixed quarterly results.
Morgan Stanley also saw gains, rising by 2.5% after surpassing analysts’ expectations across various metrics. However, Bank of America faced a decline of 3.5% after reporting diminished profits and revenues.
The early stages of the corporate earnings season brought a sense of optimism to Wall Street, with a significant majority of S&P 500-listed companies surpassing analyst estimates, according to FactSet data. Nonetheless, apprehensions regarding higher interest rates persisted, with the 2-year U.S. Treasury yield briefly surpassing 5% following Powell’s remarks, indicating a more hawkish stance from the Federal Reserve.
Quincy Krosby, Chief Global Strategist for LPL Financial, noted Powell’s perceptible shift towards a hawkish outlook, which, while impacting equity markets adversely, was absorbed by investors. Beyond monetary policy considerations, investors remained attentive to geopolitical tensions in the Middle East, exacerbated by Iran’s recent missile and drone activity targeting Israel. This geopolitical unease was reflected in the CBOE Volatility Index, colloquially known as the fear gauge, which hovered around 19 after experiencing an uptick in the preceding session.
While the Dow managed to break its recent losing streak, the downturn has eroded a significant portion of its year-to-date gains, marking a notable reversal from its recent approach towards the 40,000 mark.
