US stock indices posted impressive gains on Tuesday. Investors continued to ride a wave of optimism following President Trump’s announcement of a ceasefire between Israel and Iran.
The tech-heavy NASDAQ led the charge, with the NASDAQ 100 matching its all-time high from February as technology names continued to attract fresh buying. The S&P 500 was back within 1% of its own record high. In contrast, the Dow remains more than 4% adrift from last year’s highs, while the mid-cap, domestically focused Russell 2000 is over 12% below its own record from back in November.
US stock index futures were mixed and seemingly becalmed in early trade this morning. Investors are mindful that the current ceasefire may break down, although that seems like a small risk for now.
Of far greater import is a leaked US intelligence report suggesting that the weekend’s US airstrikes on Iranian nuclear facilities didn’t ‘obliterate’ them as claimed by President Trump. Instead, this early assessment suggests the damage may only set back Iran’s nuclear ambitions by a few months.
This would be a serious concern if the report turns out to be genuine and accurate. It opens up a myriad of possibilities when it comes to how to proceed. But for now, investors continue to add to their equity holdings.
Meanwhile, the ongoing clash between Fed Chair Powell and President Trump continues. The former is sticking to his inflation mandate, while the latter is screaming for rate cuts. Yesterday Mr Powell testified in Washington before the House Financial Services Committee. He said that Fed members were prepared to wait for more information on the US economy before deciding to take action on interest rates.
He also said that President Trump’s tariff stance only added to uncertainty, and that higher tariffs could start to boost inflation as early as this summer. Mr Powell will testify before the Senate Banking Committee later today.
Meanwhile, FOMC member Michelle Bowman joined her colleague Christopher Waller in saying she could vote for a rate cut at the Fed’s next monetary policy meeting in July. Her comments came on Monday, and led to a sharp fall in the US dollar which had been rallying at the time.
The CME’s FedWatch Tool suggests that her remarks were taken seriously. The probability of a rate cut next month rose to 20% from 12%. So, that still means that September remains the most likely time for the Fed to ease monetary policy again.
Tariff-related news also continues to trickle in. US ports are reportedly seeing a surge in Chinese freighter traffic ahead of the August 12th tariff deadline with China. This is a sign that companies are preparing for further trade disruptions. Before then, the rest of the world has around two weeks to reach agreements with the US before tariffs on US imports jump to ‘reciprocal’ levels.
Looking at the Russell 2000, which, as noted above remains 14% below its all-time high from late November (noted above). The index is retesting an area of resistance around 2,160 while the daily MACD tracks sideways. Investors remain fixated on Tech mega-caps, to the detriment of the smaller, more domestically-focused companies in the Russell.
Source: TN Trader
The question is: will the Russell continue to diverge from the NASDAQ and S&P 500, or will it play catch-up? Or, could it be that this mid-cap index is a warning that there may be trouble ahead, and that it is the big indices which end up pulling back over the next few months? Time will tell.
