Nasdaq 100, Dow Jones, S&P 500: NASDAQ Surges to Highest Level in Eight Months on Alphabet AI Release

Highlights

• NASDAQ reaches highest level in over eight months
• Lower-than-expected inflation provides some relief and suggests possible pause in rate hikes
• Large-cap tech stocks and communication services drive gains

Overview

On Wednesday, the NASDAQ reached its highest point in over eight months. This move was fueled by a lower-than-anticipated increase in April inflation. And Alphabet Inc’s latest artificial intelligence rollout.

The Dow Jones Industrial Average decreased by 30.48 points or 0.09% to 33,531.33. The S&P 500 rose by 18.47 points or 0.45% to 4,137.64, and the Nasdaq Composite increased by 126.89 points or 1.04% to 12,306.44.

The volume of shares traded on U.S. exchanges was 11.04 billion, higher than the 10.7 billion average for the last 20 trading days. Advancing issues surpassed decliners on the NYSE and NASDAQ exchanges.

Inflation Rises, but Below Forecast

The Consumer Price Index (CPI) rose by 4.9% in April compared to a year ago, slightly lower than the anticipated 5% increase. In April, the month-over-month CPI rose by 0.4%, up from 0.1% in March.

Fed Nearing End of Rate Hike Cycle

The CPI data suggests some relief in inflationary pressure, indicating that the Fed may be at or near the end of its interest rate cycle. Fed funds futures traders are expecting a pause in rate increases at the central bank’s June meeting, with a less than 5% chance of another 25 basis point hike. The market is pricing in a Fed cut beginning in the summer.

The Fed is currently in a pause, having done its last rate hike and waiting to see what happens in the coming months.

Lower Rates Benefit Growth Companies

Growth companies rely heavily on borrowed funds, so they benefit from lower interest rates. Higher interest rates have a greater impact on growth companies than other types of companies.

It’s important to note that although inflation is slowing down, it’s not decelerating quickly enough to justify a Fed funds rate cut before the fourth quarter of 2023.

Alphabet AI boosts NASDAQ

The NASDAQ went up due to Alphabet’s 4.10% climb, as the company added more artificial intelligence to its search product to compete with Microsoft Corp. Large-cap tech stocks such as Apple and Microsoft also rose, along with the S&P 500 technology sector and communication services.

Debt Ceiling Concerns

Investors were cautious due to concerns about the looming debt ceiling, even with the positive inflation print. Talks on raising the U.S. federal government’s $31.4 trillion debt ceiling were ongoing, with some potential areas of compromise emerging after a White House meeting.

Regional Bank Shares Decline

Regional bank shares declined on concerns about the sector’s health. PacWest Bancorp and Zions Bancorporation both fell.

Oil and gas producer Occidental Petroleum Corp’s first-quarter earnings were lower than expected, resulting in a 3.58% decrease in its stock value.

Livent Corp rose 5.24% after agreeing to merge with Australian lithium miner Allkem Ltd to create a $10.6 billion company.

Airbnb Inc faced losses of 10.92% due to lower bookings and average daily rates in the second quarter.

Rivian Automotive beat estimates for its first-quarter results and confirmed its annual production forecast, resulting in a 1.80% rise in its stock value.