Wall Street rebounds, Intel surges as Trump announces Apple deal, ASX set to slide
Damian Troise
Stocks rose on Wall Street on Thursday, clawing back most of their losses from a day earlier and on track for weekly gains.
The S&P 500 rose 1.1 percent. Dow Jones rose 182 points, or 0.4 percent. The Nasdaq composite rose 1.7 percent. All major indexes are on track for weekly gains. US markets will be closed on Friday for the June 10 holiday.
The Australian share market is poised to fall, with futures pointing to a loss of 51 points, or 0.6 per cent, at the open at 6.05am (AEST). The ASX lost 0.6 per cent on Thursday. The Australian dollar was trading at 70.10¢.
Wall Street’s gains help pare losses from a day earlier that stemmed from expectations that the Fed will likely raise interest rates this year to combat inflation. Bond yields are falling. This, along with falling oil prices, alleviates much of the pressure on stocks.
Gains were broad and led by technology stocks. Intel gained 10.6 percent after President Donald Trump announced that the semiconductor giant would produce chips for Apple in the United States. Other major semiconductor companies also gained strength. Nvidia increased by 2.7 percent and Micron Technology increased by 8.8 percent.
On the losing side, SpaceX fell for the second day in a row since its enthusiastic debut on the US stock market last week. The Elon Musk-led rocket maker and artificial intelligence company fell 6.5 percent, following a 4.9 percent loss on Wednesday.
Crude oil prices continued to fall after the United States and Iran signed an agreement to end their war and reopen the Strait of Hormuz to oil tanker traffic. Brent crude oil, the international standard, fell 1.8 percent to $78.16 per barrel. US benchmark crude oil fell 2.2 percent to $74.33 per barrel.
The decline in oil prices eases the pressure on companies that are heavily dependent on fuel. Airlines have made some of the biggest gains. American Airlines rose 3.6 percent and United Airlines rose 2.5 percent. Cruise line Carnival rose 4 percent.
However, energy companies lost their power due to falling oil prices. Exxon Mobil fell 2.6 percent and Chevron fell 2.7 percent.
Crude oil prices are still roughly $70 a barrel above pre-war levels, but well below the over $100 price a few weeks ago.
During the US war with Iran, high oil prices were putting pressure on the markets. The current agreement between the countries lifts sanctions against Iran and allows Iran to sell its oil freely. It also opens the Strait of Hormuz, through which one fifth of the world’s oil supply is carried.
“While investors welcome the agreement as a constructive step in terms of geopolitical risk, uncertainty remains high regarding potential flare-ups, the pace of shipping normalization, control of the waterway, the cost of access, and the path forward for Iran’s nuclear program.” Adam Turnquist, chief technical strategist at LPL Financial, said in a research note.
Rising energy costs are putting more pressure on already hot inflation. The average price of gasoline in the U.S. has fallen below $4 per gallon, but is still 25 percent higher than a year ago. Prices are increasing on a wide range of products due to high shipping costs.
Hot inflation has caused the Federal Reserve to shift course from lowering its benchmark interest rate to possibly raising rates by the end of the year. Low interest rates can stimulate the economy by making borrowing easier for businesses and households, but they also tend to increase inflation.
The Fed is trying to balance reducing inflation while supporting employment growth. The job market has remained relatively strong despite rising inflation, with low unemployment and solid job growth.
The central bank closed its two-day meeting on Wednesday by keeping its benchmark interest rate at its current level. However, he signaled that interest rates could be increased at least once until December.
“This shift in risk allocation helps explain why nearly half of the committee think a rate hike may be needed this year,” James McCann, senior economist at Edward Jones, said in a research note.
The Fed’s strong signal about an eventual rate hike led to a rise in bond yields on Wednesday, but they retreated on Thursday.
The yield on the 10-year Treasury note fell to 4.44 percent from 4.49 percent at the end of Wednesday. The yield on the 2-year Treasury note, which more closely tracks the Fed’s actions, fell to 4.15 percent from 4.20 percent late Wednesday.
Markets in Europe and Asia were mixed.
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