Wall Street closed sharply higher on Friday following dovish signals from the Fed chair Jerome Powell, hinting at a rate cut in July. Meanwhile, investors are cautiously waiting for second-quarter 2019 earnings, which will kick off from this week. All three major stock indexes closed in the green. For the week as a whole, these indexes recorded fresh all-time highs.
The Dow Jones Industrial Average (DJI) surged 0.9% or 244.02 points to close at 27.332.10. The S&P 500 climbed 0.5% to close at 3,013.75. Meanwhile, the Nasdaq Composite Index closed at 8,244.14, soaring 0.6%. The fear-gauge CBOE Volatility Index (VIX) decreased 4.2% to close at 12.39. A total of 5.68 billion shares were traded on Friday, lower than the last 20-session average of 6.71 billion. Advancers outnumbered decliners on the NYSE by a 2.02-to-1 ratio. On Nasdaq, a 1.43-to-1 ratio favored advancing issues.
How Did The Benchmarks Perform?
The Dow closed in positive territory for the third successive day with 26 components of the 30-stock blue-chip index closing in the green while four finished in the red. The S&P 500 also closed in positive territory for consecutive days. The Industrials Select Sector SPDR (XLI) gained 1.8% while the Health CareSelect Sector SPDR (XLV) lost 1.1%. Notably, eight out of 11 sectors of the benchmark index closed in the green while three ended in the red. The Nasdaq Composite ended in the green for the second straight-day due to strong performance by large-cap stocks.
Fed Signals an Impending Rate Cut
On Jul 10, in a testimony to the House Financial Services Committee, Powell said that the United States is suffering from a bout of uncertainty caused by trade tensions and weak global growth. He added “Crosscurrents have reemerged. Many FOMC participants saw that the case for a somewhat more accommodative monetary policy had strengthened.”
Powell reiterated Fed’s commitment to act as appropriate to sustain U.S. economic expansion, providing a clear message for a rate cut possibly after the upcoming FOMC meeting scheduled on Jul 30 - 31. At present, 100% respondents of CME FedWatch are expecting a 25 basis-point reduction in July.
Bleak Expectations From Second-Quarter Earnings
At present, the market is anticipating a relatively disappointing earnings session for the second quarter of 2019. As of Jul 12, total Q2 earnings for the S&P 500 Index are expected to be down 3.4% from the year-earlier period on 3.9% higher revenues. This would follow the 0.2% earnings decline on 4.5% higher revenues in Q1.
If the current consensus estimate for the second-quarter proves itself true, then it will be two consecutive quarters of earnings decline for the S&P 500. Technology, Aerospace, Basic Materials, Construction and Conglomerates sectors are likely to witness double-digit decline in second-quarter earnings. (Read More: What to Expect from Bank Earnings?)
Major banks such as, JPMorgan Chase & Co. JPM, The Goldman Sachs Group, Inc. GS, Citigroup Inc. C, Morgan Stanley MS and Bank of America Corp. BAC will reports earnings results this week. JPMorgan Chase and The Goldman Sachs carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Department of Commerce reported that producer price index for the month of June rose 0.1% compared with the consensus estimate, which predicted the indicator would remain flat. However, over a 12-month period, the producer price index rose 2.1% compared with 2.3% in May.
The last week was an impressive one for Wall Street. All three major stock indexes --- the Dow, S&P 500 and Nasdaq Composite --- surged 1.5%, 0.8% and 1%, respectively. Moreover, all three indexes recorded fresh all-time highs last Friday. Notably, the S&P 500 closed above the 3,000 mark for the first time in its history.
Strong indications from the Fed chair Jerome Powell that a rate cut was likely in July significantly raised investors’ confidence in risky assets like equities. Market participants broadly believe that a reduction in rates will act as cushion for U.S. stocks in case of a decline in second-quarter earnings.
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