S&P 500, Nasdaq Hit Record Highs As Tech Stocks Rally Ahead Of Fed Decision

Topline

Though the broader market struggled throughout the day, the Nasdaq Composite and S&P 500 nabbed new closing highs Monday as investors poured into resurgent technology stocks ahead of the Federal Reserve’s Wednesday policy announcement, in a sign Wall Street expects the central bank will continue its pandemic-era policy to bolster the economic recovery.

Key Facts

The tech-heavy Nasdaq jumped 0.7% Wednesday to 14,174 points, surpassing its latest closing record of 14,211 points on April 29. 

Meanwhile, the S&P 500 extended a Friday closing high, ticking up 0.1% as biotech firms and software giants led the index’s gains.

ResMed, Adobe and Salesforce jumped 6%, 3% and 2.7%, respectively.

The Dow Jones Industrial Average, meanwhile, fell 0.3% to 34,393 points—about 1% below its latest high on May 7.

Heading up losses in the Dow, big banks Goldman Sachs and JPMorgan, which have surged this year on expectations that the Fed will eventually raise interest rates, fell nearly 2% apiece.

Crucial Quote

“During the last seven months, rising rates and accelerating economic growth have spurred a rotation from growth stocks [like those in technology] to cyclical and value-leaning slices of the market [such as energy and financial stocks],” Morgan Stanley analysts said in a Monday note to clients. “Growth has underperformed the market, but this dynamic may not last forever,” they added, pointing to inflation as the “most proximate” risk facing the current market and saying any indication the Fed will raise interest rates to combat rising prices could hit stocks—and those in technology the hardest.

Key Background

During the pandemic, the Fed has been buying back more than $100 billion in assets each month and keeping interest rates at historically low levels to help bolster economic growth. That’s helped boost the value of stocks and other assets to meteoric highs, but as prices spike and the economy recovers, all eyes are on when the Fed will start to temper its pandemic-era policy—and whether it will be forced to do so earlier than planned.

What To Watch For

Fed Chair Jerome Powell will discuss any changes to monetary policy Wednesday afternoon after the central bank concludes one of its eight annual meetings. In a weekend note to clients, Goldman Sachs analysts said they don’t expect Powell to hint at a change in policy this month because employment is still stubbornly below pre-pandemic levels. They expect he’ll change his tone by September and announce a policy change in December. That means tech stocks could extend their rally while inflation concerns linger.

Further Reading

S&P 500 Closes At Record High After New Inflation, Jobs Data (Forbes)

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