Nvidia, Microsoft, Apple May Not Need Fed Cuts. Here’s Why Most Stocks Do, and 4

That raises the question of whether stocks need Fed cuts to sustain the rally in the second half. And the answer is probably yes.

To be sure, mega technology companies such as Nvidia, which gave the market a big leg up Monday with the announcement of a new chip, don’t need the Fed. Same for other titans such as

Microsoft

or

Apple
.

They don’t rely much on the corporate bond market to raise money, and are therefore less sensitive to higher interest rates. They’re also sitting on mountains of cash. All they really need to keep rising is continued excitement about how artificial intelligence will bolster their profits.

But for the rest, it’s different. The S&P 500 equal-weight index, which takes the average moves of all the stocks without accounting for their market capitalization, is up just 4.2% this year, less than half the 11% gain of the standard S&P index. Smaller companies may well need to borrow money cheaply to boost revenue, and they’ll need strong demand as well.

There are signs that demand could be cooling. A report Monday showed manufacturing was weaker than expected in May. The Atlanta Fed’s growth tracker was also disappointing.

There’s still a good chance that growth cools just enough to allow for Fed cuts this year while demand stays reasonably robust—the odds of a September cut edged above 50% on Monday, according to the CME FedWatch tool. But if demand weakens too much and the Fed doesn’t cut, prospects for stocks look shaky.

—Brian Swint

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A Couple of Weaker-Than-Expected Data Points Rile Markets

Surprisingly weak economic data on Monday weighed on the stock markets, where the Dow Jones Industrial Average ended in the red and the other two major indexes eked out gains at the end on the heels of tech stocks. Manufacturing activity in May showed the second consecutive month of contraction.

• The Atlanta Fed’s GDPNow model was forecasting real gross domestic product growth of 1.8% in the second quarter, down from the 2.7% it forecast just last week. It cited recent data from the Census Bureau and Institute for Supply Management for the revision. Thursday is its next update.
• Energy also has had a rough few weeks, as oil and gas demand has been relatively weak. And then the Organization of the Petroleum Exporting Countries and allies announced they would extend production cuts but start to bring barrels back on the market through next year.
• Brent crude weakened after the OPEC announcement, falling the most since December to around $78 a barrel. The international benchmark for oil has been down four days in a row, taking 7% off the price. West Texas Intermediate crude sank to $74.22 a barrel.
• Wall Street sent bond yields lower across the board on Monday as prices rose. The 10-year Treasury yield dropped the most in one day since December, closing at 4.401% and approaching its 200-day moving-average of 4.347%.

What’s Next: The Federal Reserve hasn’t changed its benchmark rate since mid-2023. Canadian and European central banks are expected to cut interest rates this week, encouraging the narrative that the Fed won’t wait too long to cut itself, NatAlliance Securities’ Andrew Brenner said.

—Karishma Vanjani and Avi Salzman

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Paramount Shareholders to Meet While Awaiting Word on Skydance Offer

Paramount Global
’s

nonvoting shareholders who have been frustrated by the slow pace of the company’s sale would be able to cash out their shares as a premium under a revised offer that Skydance Media made to buy Shari Redstone’s National Amusements and merge with Paramount.

• The revised offer was reported by The Wall Street Journal ahead of Paramount’s annual shareholders meeting today, during which the three new executives who were named to run an Office of the CEO after Bob Bakish was ousted are expected to outline their vision for the company.
• Under the new offer, David Ellison’s Skydance would buy up to a certain amount of…