CNBC Daily Open: Fed signals one rate cut

This report is from today’s CNBC Daily Open, our international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

One rate cut
The Federal Reserve signaled it expects to cut rates only once this year, down from the three quarter-point reductions projected in March. The Fed acknowledged there was “modest” progress toward its 2% inflation target. The new guidance came as it held interest rates steady, as was widely expected. Fed Chair Jerome Powell said the central bank does not yet have the confidence to start lowering interest rates, even after May’s consumer price index came in cooler than expected on Wednesday. “We see today’s report as progress and as, you know, building confidence,” Powell said. “But we don’t see ourselves as having the confidence that would warrant beginning to loosen policy at this time.”

More records
The S&P 500 closed above 5,400 for the first time as the Federal Reserve signalled one rate cut later this year and May’s inflation data came in softer than expected. The Nasdaq Composite also hit an all-time high, while the Dow Jones Industrial Average slipped 0.1%. The yield on the 10-year Treasury dropped 7 basis points to 4.33% as the Fed said it was making “modest” progress on inflation. U.S. oil prices rose as investors bet supplies would tighten later this year.

Top spot
After briefly trailing Nvidia in market capitalization, Apple has reclaimed its position as the world’s most valuable company, overtaking Microsoft. This resurgence comes after Apple unveiled its aggressive push into artificial intelligence, which sparked investor enthusiasm. As of 10:45 a.m. ET, Apple’s market cap soared to $3.3 trillion, edging out Microsoft’s $3.2 trillion valuation. But by the close of trading Microsoft had regained its slight edge over Apple. Leading financial institutions like Morgan Stanley, Evercore and Bank of America have echoed this optimism, predicting that Apple’s AI advancements will drive a surge in new iPhone sales.

Cashing in
GameStop shares plunged on Wednesday, coinciding with a surge in trading volume of call options possibly owned by “Roaring Kitty.” Over 93,000 contracts with the same strike price and expiration as Keith Gill’s holdings were traded, far exceeding the 30-day average. While it’s unclear if Gill was behind the sales, speculation suggests he may have been unwinding his position to avoid needing a large cash outlay to exercise the options by June 21. Wall Street is closely monitoring Gill’s actions due to their potential impact on GameStop’s stock price.

China EV tariffs
The European Union will impose higher tariffs on Chinese electric vehicle imports from July 4, citing unfair subsidies and a threat to European EV producers. The additional tariffs, ranging from 17.4% to 38.1%, are a result of an EU investigation that found Chinese EV companies benefit from unfair subsidies. China’s Ministry of Commerce criticized the EU decision as protectionist and lacking factual basis. The EU stated these tariffs are provisional and definitive measures will be in place within four months. 

[PRO] Resilient stocks
Despite mounting consumer challenges and a 3.3% inflation rate, Goldman Sachs remains optimistic about these select stocks that could benefit from continued wage growth. The Wall Street bank highlights six promising companies with low prices, unique growth drivers and robust revenue streams.

Despite the Federal Reserve holding interest rates and forecasting only one cut for the remainder of 2024, Lazard’s chief market strategist Ronald Temple anticipates further reductions. He advises investors, “Don’t take too much direction from today’s FOMC ‘dot plot.’ As upcoming inflation and labor reports confirm easing price pressures and labor market tightness, I expect FOMC members to reassess their forecasts to include more rate cuts by year-end.”

Fed Chair Jerome Powell echoed Temple’s sentiment, saying May’s strong jobs data might be slightly “overstated,” indicating revisions could be on the way. “…There’s an argument that they may be a bit overstated, but still, they’re strong,” Powell said, referring to U.S. payroll reports. “We see gradual cooling, gradual moving toward better balance.”

With the Fed and inflation data out of the way, the next big event for investors is whether shareholders will approve Elon Musk’s $56 billion pay deal today. The problem for Musk, even if he gets his way, is that he’s facing numerous lawsuits.

Many large investors who, back in 2018, voted against the compensation package have said they’ll do the same again. CalPERS,  CalSTRS, Norway’s $1.7 trillion sovereign wealth fund and advisory groups ISS and Glass Lewis are against the proposal, but he does have his backers.

The Delaware court, in voiding the original deal, highlighted concerns about the remuneration committee’s independence. Tesla’s chair, Robyn Denholm, for instance, cashed in $280 million in stock, while others on the committee had deep-rooted business or personal ties to Musk.

Further raising eyebrows, Musk asked his former divorce lawyer, Todd Maron, who was also drafting the compensation package, to arrange a call with a dissenting shareholder to “convince them to divest from Tesla and any of [his] companies.”

While some fear Musk might abandon Tesla, the court deemed this unlikely. 

Gordon Johnson, CEO of GLJ Research, offered a different perspective to CNBC: “Musk had long ago mentally checked out of Tesla. But he’s not going to leave. He’s going to do what he has done for years. He’s going to milk Tesla to support his other businesses.” 

Employees’ Retirement System of Rhode Island (ERSRI) filed a lawsuit on Tuesday accusing Musk of making billions of dollars by selling Tesla shares using insider information. It’s similar to another lawsuit accusing Musk of insider trading when he sold $7.5 billion in stock.

ERSRI’s lawsuit says Musk has been disloyal towards Tesla by diverting employees to work for X. And here’s the crux of what some big investors and the Delaware court have been saying: Tesla’s board of directors independence from Musk is “questionable.” 

— CNBC’s Jeff Cox, Lisa Kailai Han, Pia Singh, Alex Harring, Spencer Kimball, Yun Li, Rohan Goswami, Sean Conlon and Sarah Min contributed to this report.