US stocks surge to record highs amid slowing inflation and interest rate speculations

US stocks reached new record highs following the latest monthly inflation report from the Bureau of Labour Statistics, which indicated a slowdown in US inflation in April. This development could potentially influence the Federal Reserve to consider reducing interest rates later this year.

The blue-chip S&P 500 and technology-focused Nasdaq indices increased by 1.7% and 2.5% respectively, while the 30-stock Dow Jones Industrial Average surpassed the 40,000 level for the first time in its 139-year history.

Federal Reserve officials have previously resisted calls to lower interest rates due to stalled progress in reducing inflation. However, last Wednesday’s report suggested a possible shift in stance. Headline annual consumer price inflation decreased to 3.4%, marking the first decline in three months. The core rate, which excludes volatile items such as food and energy, slowed to 3.6%, the lowest level since April 2021.

Money markets are now anticipating that the Federal Reserve will begin reducing interest rates in September, potentially placing it behind the European Central Bank and the Bank of England, both of which have indicated plans to cut interest rates over the summer.

In corporate news, shares in BT Group surged by over 17% on Thursday, despite reporting a 31% drop in pre-tax profits to £1.2 billion for the year ending in March. This decline was attributed to a write-down on its struggling business division and an increasing pension deficit.

Investors, however, chose to focus on the strategy outlined by the new CEO Allison Kirby, which includes a plan to cut an additional £3 billion in costs over the next five years and to enhance cash flow, as the company has now passed its peak capital expenditure on the rollout of full fibre broadband across the UK. BT also announced an increase in its full-year dividend to 8p per share.

The rise in share price also led to a short squeeze, affecting short sellers who had accumulated a record £300 million short position in BT prior to the results announcement.

Ryanair reported a 34% increase in full-year profit after tax to €1.92 billion, with passenger numbers reaching 184 million, 23% higher than pre-COVID levels. However, shares in the budget airline declined on Monday after it warned of softer airfares in the peak summer season than previously expected. Ryanair has also been impacted by delivery delays at Boeing, resulting in a shortfall of 23 new 737 Max jets this summer.

Chief Executive Michael O’Leary revealed that consumer sentiment has weakened across Europe. With less than 50% of seats booked for the peak travel period, prices are expected to be flat or only slightly higher than last summer.

Looking ahead, Nvidia’s earnings report, due to be released after trading hours this evening, will be a significant focus for investors. Shares in the chipmaker have risen 91% year-to-date, following a 220% increase last year, and expectations are high for it to surpass analysts’ forecasts once again.

The signs of slowing inflation pushed gold prices to a new record high. While the precious metal is traditionally seen as a hedge against inflation, the prospect of lower interest rates reduces the opportunity cost of holding a non-yielding asset.

Oil prices increased as investors monitored developments following the death of Iran’s president, Ebrahim Raisi, in a helicopter crash on Sunday. Iran, being OPEC’s third-largest oil producer, is not expected to alter its energy policy significantly under Mohammad Mokhber, who will serve as interim president until an election is held within 50 days.

TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.

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