Wall Street closed sharply higher on Wednesday as weak economic data raised investors’ expectations of a rate cut in July. All three major stock indexes posted fresh all-time highs. Meanwhile, yields on government bonds of the United States and several countries in the Eurozone fell following renewed U.S.-EU trade tensions. U.S. stock markets had a truncated session on Wednesday on account of the Independence Day holiday on Thursday.
The Dow Jones Industrial Average (DJI) soared 0.7% or 179.32 points to close at 26,966. The S&P 500 surged 0.8% to close at 2,995.382. Meanwhile, the Nasdaq Composite Index closed at 8,170.23, climbing 0.8%.The fear-gauge CBOE Volatility Index (VIX) decreased 2.8% to close at 12.57. A total of 4.15 billion shares were traded on Wednesday, lower than the last 20-session average of 6.89 billion. Advancers outnumbered decliners on the NYSE by a 2.64-to-1 ratio. On Nasdaq, a 1.85-to-1 ratio favored advancing issues.
How Did The Benchmarks Perform?
The Dow closed in positive territory with 26 components of the 30-stock blue-chip index closing in the green while three finished in the red while one remained unchanged. The S&P 500 also closed in positive territory. The Real Estate Select Sector SPDR (XLRE) and Consumer Staples Select Sector SPDR (XLP) gained 1.4% and 1.2%, respectively. Notably, all 11 sectors of the benchmark index closed in the green.
The tech-heavy Nasdaq Composite ended in the green for fifth consecutive days due to strong performance by FAANG stocks. Shares of Netflix Inc. NFLX and Facebook Inc. FB gained 1.7% and 1.1%, respectively. Both stocks carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Indexes Hit Record Highs While Bond Yields Lower
On Jul 3, the Dow finished at 26,966, surpassing its last all-time high close posted on Oct 3. The S&P 500 ended at 2,995.82, marking its third all-time high within a week. The Nasdaq Composite closed at 8,170.23 after sealing a new record, breaching the previous landmark posted on May 3.
On July 4, yield on 10-year U.S. Treasury Note tumbled below 2% to 1.952%, the lowest since November 2016. The yield touched as low as 1.939% in intraday trading. In the Eurozone, yields on 10-year German and French government bonds plunged below zero to -0.398% and -0.12%, respectively. The yield on the 10-year Belgian government bond was also trading in negative territory. Meanwhile, Italian 10-year bond yield dropped to 1.67%, its lowest in 14 months.
Market to Watch Fed and Trade
At present, the primary concern of U.S. investors is the trade conflict with China. Although a quick solution to this problem is out of the question, companies will heave a sigh of relief if the tariff war does not escalate further. Meanwhile, Trump’s recent threats to impose 25% tariff on $4 billion goods of Eurozone has raised volatility on the bourses. This is in addition to $21 billion tariff already imposed on the EU due to subsidies given to the aerospace sector.
Moreover, a dovish stance taken by the Fed since the beginning of this year is acting as a major boost to the U.S. economy. So far, the central bank has kept its benchmark leading rate at 2.25-2.5%, and has hinted it will cut rates later this year. Investors are considering reduction of at least 25 basis points in July and one or two more cuts over the rest of this year.
The Department of Laborreported that initial jobless claims fell by 8,000 to 221,000 for the week ended Jun 29 from 229,000 in the previous week. The figure was better than the consensus estimate of 222,000. The monthly average of new claims rose by a mere 500 to 222,250.
The Department of Commerce reported that the U.S. trade deficit in May worsened to $55.5 billion compared with a revised $51.2 billion in April. The consensus estimate was for a deficit of $53.1 billion.
U.S. factory orders (for both durable and non-durable goods) in May decreased by 0.7%, wider-than the consensus estimate of a decline of 0.4%. However, revised figure show factory orders in April dropped by 1.2% instead of 0.8% as reported earlier.
The ISM services index for June came in at 55.1, below the consensus estimate of 55.9. The reading for May was 56.9.
Additionally, ADP/Moody’s data showed that private sector job additions came in at 102,000 in May, a big improvement from 41,000 jobs added in May.
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