US equities opened higher on Thursday evening, Beijing time. Oil prices retreated from recent levels. Semiconductor stocks rebounded from recent pressure, with the market continuing to monitor the latest developments in US-Iran tensions following new US strikes overnight. The European Central Bank raised interest rates for the first time since 2023. US May PPI rose 6.5% year-over-year, hitting a two-and-a-half-year high.
The Dow Jones Industrial Average gained 53.29 points, or 0.11%, to 49,972.07. The Nasdaq Composite advanced 135.694 points, or 0.54%, to 25,305.196. The S&P 500 increased by 32.75 points, or 0.45%, to 7,299.74.
Chip stocks such as Micron, AMD, and Intel rebounded, with the iShares Semiconductor ETF rising 3%. This chip ETF had faced renewed pressure this week, following a 10% plunge last Friday that led many investors to question whether the sector's parabolic rally had concluded.
On Thursday, Bank of America upgraded Intel's rating from "underperform" to "buy," driving a significant percentage gain in the stock.
The rebound in chip stocks comes as market enthusiasm builds for SpaceX's upcoming debut on Friday, which may highlight the growth prospects associated with AI infrastructure expectations. Some traders believe the recent weakness in chip stocks was due to investors selling holdings in their portfolios to make room for this IPO, which is valued at up to $1.8 trillion and would be the largest listing in history.
While tech stocks rose on Thursday, Oracle's shares fell more than 9% after the software giant announced plans to raise an additional $20 billion in equity and debt to fund its artificial intelligence infrastructure spending.
West Texas Intermediate crude futures pulled back from overnight highs, currently down approximately 1%.
According to a post on social media platform X by US Central Command, its forces conducted further "defensive strikes" against Iran late Wednesday. The post stated these strikes were conducted under the direction of the US President.
On Thursday, the US President declared that the US would take strong measures against Iran, targeting the Kharg Island and other "key points of oil infrastructure."
During Wednesday's regular trading session, stocks fell as the chip sector faced renewed selling pressure and tensions with Iran escalated. The Dow plunged 953.33 points, or 1.87%. The S&P 500 dropped 1.62%, and the tech-heavy Nasdaq Composite declined 1.98%.
Victoria Fernandez, Chief Market Strategist at Crossmark Global Investments, stated that many investors are now buying assets they perceive as opposite to the AI trade that has driven the stock market rally for much of this year.
"I think what people are thinking is, where do we go to hedge the tech trade? What is the opposite of this momentum and beta?" she said. "We are seeing money rotate out of the tech sector into sectors that have taken some hits over the past few months."
Fernandez added that she is seeing clients increasingly allocate funds to other areas such as pharmaceuticals and biotechnology within healthcare, as well as the financial and energy sectors.
In overseas central bank news, against the backdrop of ongoing US-Israel actions against Iran causing European inflation to deviate from target levels, the European Central Bank announced a 25-basis-point rate hike on Thursday, raising its key rate to 2.25%.
According to data from London Stock Exchange Group, markets had almost fully priced in at least a 25-basis-point hike from the ECB ahead of its June Governing Council meeting.
On the economic data front, US May Producer Price Index rose 6.5% year-over-year, a two-and-a-half-year high, primarily driven by surging energy prices.
Data released by the US Bureau of Labor Statistics on Thursday showed the PPI increased 1.1% month-over-month in May, exceeding market expectations of 0.7%. The year-over-year gain reached 6.5%, the highest level since November 2022. This data indicates inflationary pressures at the wholesale level are further building.
Core PPI, which excludes food and energy, rose 0.4% month-over-month, slightly below the market expectation of 0.5%, suggesting rising fuel prices are a primary driver of the current inflation burden. Further excluding food, energy, and trade services, core PPI increased 0.8% month-over-month, the largest monthly gain since March 2022, and rose 5.1% year-over-year, the highest since October 2022.
Analysts noted that the current inflation situation may keep the Federal Reserve on hold for the foreseeable future. The Fed's Federal Open Market Committee will announce its latest interest rate decision next Wednesday, with market pricing showing a near-100% probability of no change. Traders see zero chance of a rate cut this year, while the probability of another hike exceeds 60%, most likely materializing in December.
Earlier on Thursday, the European Central Bank voted to raise its benchmark rate by 25 basis points to curb soaring inflation. In contrast, few Fed officials have expressed a similar tightening inclination, with most advocating for a patient approach to observe whether energy supply shocks will fade and if inflation can return to the 2% target level.
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