US stocks closed higher on Wednesday, with the Dow Jones Industrial Average reclaiming the 50,000 level. The rally was fueled by rising optimism that the Middle East conflict could be resolved soon, leading to a simultaneous decline in oil prices and US Treasury yields. Traders also awaited the release of Nvidia's first-quarter earnings report. The minutes from the Federal Reserve's latest meeting revealed that several officials favored abandoning the "easing bias."
The Dow gained 645.47 points, or 1.31%, closing at 50,009.35. The Nasdaq Composite rose 399.65 points, or 1.54%, to 26,270.36. The S&P 500 increased by 79.31 points, or 1.08%, ending at 7,432.92.
Late in Wednesday's trading session, West Texas Intermediate crude futures fell 6%, trading around $97 per barrel. Brent crude also retreated 6%, hovering near $104 per barrel. This followed reports that US President Trump told journalists that negotiations between his administration and Iran had entered a "final stage."
As developments unfolded, US Treasury yields also cooled. On Wednesday, the yield on the 10-year Treasury note dropped more than 8 basis points, while the 30-year yield fell 6 basis points.
The bond market had unsettled investors in recent days, with the 30-year Treasury yield reaching its highest level since 2007 and the 10-year yield approaching multi-year highs. Growing concerns emerged that inflation could reaccelerate due to rising oil prices, and that the Federal Reserve, soon to be led by Kevin Warsh, was already behind the curve in combating inflation. Higher interest rates could derail an economy already threatened by increasing energy costs.
According to the latest Federal Reserve meeting minutes, most officials anticipated that future interest rate hikes might be appropriate if the Middle East conflict continues to exacerbate inflation. The minutes stated: "However, most participants emphasized that some degree of policy tightening could become appropriate if inflation persists above 2%."
Released on May 20, the minutes from the Federal Reserve's April 28-29 monetary policy meeting showed that most officials expressed willingness to support raising interest rates if inflation remains elevated. This stance marks a notable shift toward a more hawkish position, indicating that "rate cuts" are no longer the primary focus of discussion.
The minutes highlighted that most participants stressed the potential necessity for further policy tightening if inflation remains stubbornly above the 2% target. This reflects deep concern among policymakers about the inflation outlook. The minutes revealed that staff projections for inflation this year were significantly higher than in March, primarily due to rising energy prices and supply chain pressures stemming from the Middle East conflict.
Participants broadly agreed that heightened geopolitical tensions in the Middle East could significantly impact the economic outlook and policy path. Elevated energy prices are expected to continue exerting upward pressure on overall inflation in the near term, with the vast majority of officials acknowledging that returning inflation to the 2% target will likely take longer than previously anticipated.
Notably, many policymakers even favored removing the "easing bias" from the policy statement, which had hinted at potential future rate cuts. While a few officials believed that rate cuts later in the year could still be appropriate if inflation moderates, this view is no longer mainstream. This meeting was the last chaired by Jerome Powell, with incoming Chair Kevin Warsh set to lead a Federal Reserve leaning more toward a hawkish stance. Market expectations have adjusted rapidly, with the risk of rate hikes being seriously considered for the first time since 2023.
Investors also turned their attention to Nvidia, scheduled to release its first-quarter earnings after the market close. This report will serve as a crucial window into the AI trade and provide the latest insights into chip demand. The company's stock recently rose 2%.
James Demert, Chief Investment Officer at Main Street Research, commented: "Nvidia is the most important AI stock. Since much of the stock market's gains over the past few years have been driven by the astonishing capabilities of AI, the outcome of Wednesday's earnings report means everything for this market."
The stock has risen 20% this year. Demert noted that despite market skepticism about this chipmaker and AI favorite—particularly given its cumulative gain of over 1400% in the past five years—expectations heading into the earnings report were "somewhat subdued."
"The key focus in Nvidia's earnings will be any signs of margin compression due to rising memory chip prices and how the company is navigating sales in China," he added.
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