Wall Street closed higher on Wednesday after the Fed kept the federal fund target rate unchanged while giving a clear indication that the central bank might cut rates at least once in this year. The European Central Bank (ECB) had also given a strong indication of a near-term rate cut a day earlier. Assurance of pursuing of accommodative monetary policies from two major central banks boosted investors’ confidence in equities. All three major stock indexes finished in the green.
The Dow Jones Industrial Average (DJI) rose 0.2% to close at 26,504. The S&P 500 gained 0.3% to close at 2,926.46. Meanwhile, the Nasdaq Composite Index closed at 7,987.32, increasing 0.4%. The fear-gauge CBOE Volatility Index (VIX) decreased 5.4% to close at 14.33. A total of 6.5 billion shares were traded on Wednesday, lower than the last 20-session average of 6.8 billion. Advancers outnumbered decliners on the NYSE by a 1.65-to-1 ratio. On Nasdaq, a 1.40-to-1 ratio favored advancing issues.
How Did The Benchmarks Perform?
The Dow closed in positive territory with 20 components of the 30-stock blue-chip index closing in the green while ten finished in the red. Meanwhile, tech-heavy Nasdaq Composite ended in positive territory due to strong performance by large-cap stocks especially semiconductor stocks.
The S&P 500 also closed in positive territory. The Health Care Select Sector SPDR (XLV) and Utilities Select Sector SPDR (XLU) gained 0.9% and 0.8%, respectively. Notably, seven out of 11 sectors of the benchmark index closed in the green while four ended in the red.UnitedHealth Group Inc. UNH, Merck & Co., Inc. MRK and Pfizer Inc. PFE gained 1.8%, 1% and 1%, respectively. Merck & Co. carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Fed Signals a Near-Term Rate Cut
On Jun 14, theFederal Reserve kept its benchmark lending rate intact at 2.25—2.5%. Fed’s fund flow rate projection chart is not showing any possibility of a reduction in rate before early 2020.
However, the noticeable fact is that out of seventeen voting members of the Fed, eight are expecting a rate cut later this year while another eight members are in favor of maintaining status quo. Only one member is expecting a rate hike instead of a rate cut.
Market participants are considering these numbers as strong indication that one or more rate cuts will take place this year. In fact, several market watchers are expecting a quarter to half a percentage point cut in the benchmark rate throughout the rest of 2019.
Notably, the Fed has removed the term “patient’ from its minutes and added“the FOMC will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion”. The Fed has said that adoption of more accommodative policy is gaining ground as some economic developments have raised concerns about global growth.
ECB Proposes for More Stimulus
On Jun 18, speaking at the ECB Forum in Sintra, Portugal, ECB chairman Mario Draghi gave a strong signal that if economic condition of the Eurozone deteriorates, the ECB will inject more stimulus either in the form of an interest rate cut or further asset purchases. “In the absence of improvement, such that the sustained return of inflation to our aim is threatened, additional stimulus will be required,” Draghi stated.
Per ECB, trade conflict between the United States and China, a possible spat with Eurozone regrading auto tariffs, and geopolitical crisis in the Middle East and other oil exporting countries have taken a toll on Eurozone’s exports and manufacturing sector. These two are the main growth promoting sectors of the Eurozone economies. Notably, the ECB is maintaining its soft monetary approach since the sovereign debt crisis of 2011.
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