Stocks eked out gains in a cautious session that saw investors positioning for the Federal Reserve decision and key inflation data. Apple Inc. slid even after unveiling new artificial-intelligence features.

As traders braced for volatility ahead of U.S. macroeconomic catalysts, uncertainties across the Atlantic also kept a lid on equities. European shares slid after French President Emmanuel Macron called a legislative vote in the wake of a crushing defeat in Parliament elections. Yields on France’s 10-year bonds hit their highest this year, while the nation’s top banks tumbled. The euro led losses in developed-world currencies.

Wall Street’s most-prominent trading desks from JPMorgan Chase & Co. to Citigroup Inc. are urging investors prepare for a stock market jolt after Wednesday’s consumer price index and the U.S. rate decision.

The Fed is widely expected to hold borrowing costs steady, but there’s less certainty on officials’ rate projections. A 41 per cent plurality of economists expect them to signal two cuts in the “dot plot,” while an equal number expect the forecasts to show just one or no cuts at all.

“The interest-rate guessing game goes on,” said Chris Larkin at E*Trade from Morgan Stanley. “Even the friendliest inflation numbers probably won’t push the Fed to act any sooner than September.”

The S&P 500 rose 0.3 per cent to close at a fresh record. Nvidia Corp. began trading after a 10-for-one stock split. GameStop Corp. plunged.  

The Treasury market also saw small moves as a weak US$58 billion three-year auction knocked sentiment ahead of Tuesday’s $39 billion 10-year sale.

“The release of a new ‘dot plot’ outlining Fed projections for the path of rates will be the top focus,” said Jason Pride and Michael Reynolds at Glenmede. “For fixed income investors, the Fed’s more patient higher-for-longer approach is likely to keep bond yields elevated as inflationary pressures remain.”

After Friday’s solid jobs report, traders pulled back on rate-cut expectations, pricing in the first full 25 basis points of easing in December — rather than November. 

The options market is betting the S&P 500 will move 1.3 per cent to 1.4 per cent in either direction by Friday, based on the price of at-the-money straddles that expire that day, according to Andrew Tyler, head of U.S. market Intelligence on JPMorgan Chase’s trading desk.

Meanwhile, investors are preparing for a Fed day stock-market move that would be the largest since March 2023, according to Stuart Kaiser, Citigroup’s head of U.S. equity trading strategy.

Investors remain too optimistic about the timing of a Fed-rate cut, according to RBC Capital Markets strategists led by Lori Calvasina.

The benchmark index could drop to 4,900 points if the Fed holds rates at current levels, inflation proves stickier than expected and the 10-year Treasury yield remains below 5 per cent, the strategists wrote in a note.  

If the central bank were to cut rates as expected, but earnings came in below projections, the S&P 500 would trade around 5,100 points — about 5 per cent lower than current levels, Calvasina said. And the third — bearish — scenario sees the benchmark slumping almost 16 per cent if stubborn inflation results in Fed rate hikes.

“The equity market has had a terrific year, but there is a current pause in the rally as the Fed comes into question,” said David Donabedian at CIBC Private Wealth U.S. “There is a real chance if the economy does not slow down there will be no rate cut this year.”

More than 60 per cent of respondents in the latest MLIV Pulse survey expect U.S. stocks to outperform Treasuries on a volatility-adjusted basis next month. 

That reading has been higher only three times in the history of the survey going back to August 2022.

Corporate Highlights:

• Activist Elliott Investment Management called for sweeping changes to Southwest Airlines Co.’s leadership to reverse what it sees as years of underperformance by one of the biggest U.S. carriers.
• The U.S. Supreme Court agreed to consider killing a multibillion-dollar shareholder lawsuit that accuses Meta Platforms Inc. of misleading investors about the data-harvesting scandal involving political consulting firm Cambridge Analytica.
• Advanced Micro Devices Inc. was cut at Morgan Stanley, which said investor expectations for the chipmaker’s AI business “seem too high.”
• KKR & Co., CrowdStrike Holdings Inc. and GoDaddy Inc. will join the S&P 500 as part of its latest quarterly weighting change.
• Noble Corp., the world’s biggest offshore oil-rig contractor by market value, agreed to buy its smaller rival Diamond Offshore Drilling Inc. in a deal valued at $1.6 billion.

Key events this week:

• China PPI, CPI, Wednesday
• Germany CPI, Wednesday
• U.S. CPI, Fed rate decision, Wednesday
• G-7 leaders summit, June 13-15
• Eurozone industrial production, Thursday
• U.S. PPI, initial jobless claims, Thursday
• Tesla annual meeting, Thursday
• New York Fed President John Williams moderates a discussion with Treasury Secretary Janet Yellen, Thursday
• Bank of Japan’s monetary policy decision, Friday
• Chicago Fed President Austan Goolsbee speaks, Friday
• U.S. University of Michigan consumer sentiment, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 0.3 per cent as of 4 p.m. New York time
• The Nasdaq 100 rose 0.4 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World Index rose 0.1 per cent

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro fell 0.4 per cent to $1.0762
• The British pound was little changed at $1.2730
• The Japanese yen fell 0.2 per cent to 157.01 per dollar

Cryptocurrencies

• Bitcoin fell 0.4 per cent to $69,434.01
• Ether fell 1 per cent to $3,663.81

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.47 per cent
• Germany’s 10-year yield advanced five basis points to 2.67 per cent
• Britain’s 10-year yield advanced six basis points to 4.32 per cent

Commodities

• West Texas Intermediate crude rose 3.1 per cent to $77.89 a barrel
• Spot gold rose 0.7 per cent to $2,309.10 an ounce