U.S. markets opened the week on a strong note as investor optimism over potential interest rate cuts by the Federal Reserve outweighed rising geopolitical tensions in the Middle East.
All three major U.S. stock indices posted gains, with the consumer discretionary sector leading the rally, aided in part by a notable jump in Tesla’s stock.
Jay Hatfield, CEO of InfraCap, described the rally as “a bit surprising” given the volatile backdrop.
“In a way, the U.S. attack puts an end to the uncertainty of whether the U.S. is going to attack,” Hatfield said.
He added, “The market action is extremely bullish because this is the time frame in June when we’re supposed to have a pullback. People do not want to sell in this market.”
Fed Officials Signal Policy Shift
Investor sentiment was buoyed by comments from top Federal Reserve officials suggesting that monetary policy might be eased soon.
Vice Chair Michelle Bowman stated that the time had come to consider lowering the policy rate, citing rising risks to employment over lingering inflation concerns, especially those linked to tariffs.
Separately, Austan Goolsbee, President of the Federal Reserve Bank of Chicago, noted that the current impact of tariffs on the economy has been less severe than previously anticipated.
Traders are now betting on at least two interest rate cuts by the end of 2025, with many expecting the first move to come in September.
Tesla Surges on Robotaxi Launch
Tesla shares soared 9.4% following the company’s launch of its long-anticipated robotaxi service in Austin, Texas.
The announcement helped lift consumer discretionary stocks and provided a significant boost to overall market performance.
Meanwhile, energy stocks were the only major sector to close lower on the day, largely due to a drop in oil prices.
Oil Prices Fall Despite Escalation
Despite fresh retaliatory moves by Iran and ongoing Israeli strikes, oil prices fell.
Tehran had previously threatened to close the Strait of Hormuz, a key global oil route, but its recent actions did not disrupt shipping traffic.
That helped alleviate immediate concerns over supply constraints, leading to a retreat in energy prices.
Economic Data Offers Mixed Signals
New economic data offered further insight into the health of the U.S. economy.
S&P Global’s flash purchasing managers’ indexes indicated the economy is growing slightly faster than expected.
In housing, new home sales unexpectedly rose in May, despite elevated borrowing costs continuing to put pressure on the sector.
Looking ahead, markets are awaiting key economic releases later in the week, including revised first-quarter GDP figures, PCE inflation data, and Federal Reserve Chair Jerome Powell’s congressional testimony.
Indexes End Higher
The Dow Jones Industrial Average gained 305.71 points, or 0.72%, closing at 42,512.53.
The S&P 500 rose by 44.70 points, or 0.75%, to end at 6,012.54.
The Nasdaq Composite advanced 177.08 points, or 0.91%, to finish at 19,624.49.
Among the 11 S&P 500 sectors, consumer discretionary stocks were the top performers.
Energy stocks were the only group to close in negative territory.
Eli Lilly saw its shares rise 0.9% after investors reacted favorably to data on a competing obesity drug from Novo Nordisk, which fell short of expectations and sent the latter’s stock down 5.3%.