JUNE 29 — Wall Street was set to open higher today, as bank stocks rose after major lenders cleared the Federal Reserve's annual stress test, while economic data pointed to a resilient US economy in the face of aggressive interest rate hikes.
Shares of Bank of America, JPMorgan Chase, Goldman Sachs and Wells Fargo rose between 1.5 per cent and 1.9 per cent in premarket trading after the banks sailed through the Fed's annual health check, which showed they have enough capital to weather a severe economic slump.
Bank of New York Mellon and Charles Schwab rose 1.9 per cent and 2.4 per cent, respectively.
"The market is getting a sense of relief because the tests are critical. The banks passing with flying colors in what would be near depression conditions tells us that the fears regarding banks were probably exaggerated," said Thomas Hayes, chairman at Great Hill Capital.
The S&P 500 and Dow closed lower yesterday after Fed Chair Jerome Powell said he did not see inflation falling to the central bank's target rate "this year or next year" and that most of the policymakers expect the Fed will need to raise interest rates at least twice by the year's end.
Meanwhile, data showed the number of Americans filing new claims for unemployment benefits unexpectedly fell last week, which indicated labor market strength.
A separate report showed the US gross domestic product increased at a 2.0 per cent annualised rate in the first quarter, up from the 1.3 per cent pace reported previously.
Following the hawkish views and data, traders were pricing in an 84.3 per cent chance the Fed would hike interest rates by 25 basis points to 5.25 per cent-5.50 per cent range in its July meeting, according to CME Group's Fedwatch tool, up from 74.4 per cent a week earlier.
"Economic data continues to beat on most fronts and it's hard to see a scenario where one or two hikes would derail the economy. But the odds of the hikes are much less than Powell is projecting so tech stocks are benefiting," said Great Hill Capital's Hayes.
Apple inched 0.2 per cent higher after closing at a record high today and edging closer to a US$3 trillion market capitalization.
Shares of other high-growth companies such as Tesla and Nvidia rose more than 1 per cent each.
The Personal Consumption Expenditure index (PCE), the Fed's preferred inflation gauge, for May will be released tomorrow. Economists polled by Reuters expect core rates to remain steady at 4.7 per cent.
At 8:43 a.m. ET, Dow e-minis 1YMcv1 were up 118 points, or 0.35 per cent, S&P 500 e-minis EScv1 were up 11.25 points, or 0.25 per cent, and Nasdaq 100 e-minis NQcv1 were up 32 points, or 0.21 per cent.
Micron Technology rose 2.4 per cent after the chipmaker beat estimates for third-quarter results, powered by demand for its memory chips.
Occidental Petroleum advanced 1.3 per cent after Berkshire Hathaway Inc said it added more shares of the oil firm, boosting its stake to above 25 per cent. — Reuters
