Markets had a second consecutive positive day, trying to put the last two weeks’ losses behind them. The S&P 500 increased nearly 1%, The Dow Jones Industrial Average added 0.34% and the Nasdaq Composite climbed 1.5%.
With those numbers, the S&P and Nasdaq are at their highest levels since August 2022.
The rally in markets Thursday was driven by bad things that did not happen — or at least appear less likely to happen — rather than good things that did. It’s a reminder to investors that markets are often moved more by expectations than actual events.
First, the possibility of the U.S. defaulting on its debt is the lowest since discussions started in Washington. House Speaker McCarthy’s positive comments Thursday boosted optimism that the U.S. will reach a deal on the ceiling before June 1, when the country might become unable to pay its debts.
Next, the Supreme Court decided not to remove the legal shield that protects tech companies from being prosecuted over their users’ posts. Firms most affected by the ruling rose in relief: Alphabet, which owns YouTube, added 1.65%, and Meta, the parent company of Facebook, rose 1.8% to a 52-week high (though the stock also got juiced by Meta’s new artificial intelligence chips).
Yesterday was also a busy day for Federal Reserve speakers.
Dallas Federal Reserve President Lorie Logan, a voting member of the Federal Open Market Committee, thinks economic data don’t support a pause in rate hikes. “It’s a long way from here to 2% inflation,” Logan said, noting that an inflation reading for the last quarter was, in fact, higher than the fourth quarter of 2022. St. Louis Fed President James Bullard even suggested higher rates as “insurance” against inflation.
Treasury yields inched higher in response to those comments, but investors’ relief around the debt ceiling was so strong that stock indexes weren’t affected much by interest rates. As always, avoiding defeat can be more powerful than outright victory.