The S&P 500 index climbed 1.1% on Tuesday, nearing its record high following positive developments on the geopolitical front and encouraging signals from the Federal Reserve. After 12 days of geopolitical tension, markets saw relief as the Iran-Israel ceasefire appeared to hold. Although both sides accused each other of violating the truce, the immediate risk of escalation seemed to diminish, stabilizing global markets.
This cooling of tensions allowed risk assets to rebound, with the tech-heavy Nasdaq Composite jumping 1.4% and the Dow Jones Industrial Average advancing 1.2%. In Washington, Federal Reserve Chair Jay Powell’s testimony to Congress provided additional momentum. Powell indicated that the central bank is closely monitoring signs of disinflation and did not rule out a potential rate cut in September.
He stated, “We’ll get an inflation report well before the July meeting. We will continue to adapt to the evolving situation as we’ll continue to be doing.”
Currently, the CME FedWatch tool gives an 18.6% chance of a rate cut in July, with the probability rising to 87% for September.
S&P 500 gains as tensions ease
Powell’s comments reassured investors who feared that persistent inflation might force the Fed to maintain elevated interest rates. The positive market response was evident across sectors. Notable tech stocks, including five members of the Mag 7 club, saw gains, with Tesla, however, sliding 2.4% after unveiling its robotaxi pilot program.
Apple also fell slightly by 0.6%. The Federal Reserve has just four policy meetings left for 2025, making the window for any rate cuts increasingly narrow. Powell’s assurances suggested that while the Fed is committed to controlling inflation, there remains flexibility to ease monetary policy if economic conditions improve.
Powell’s ongoing testimony before the Senate Committee on Banking, Housing, and Urban Affairs continues to be closely watched by investors. His remarks have so far provided a boost to market sentiment amid a backdrop of easing geopolitical tensions and cautious optimism about future rate adjustments.
