Wall Street closed sharply higher on Tuesday after Fed Chairman Jerome Powell signaled reduction in benchmark interest rate this year. Moreover, positive developments on trade war front also steadied investors’ confidence. All three major stock indexes rallied significantly.
The Dow Jones Industrial Average (DJI) surged 2.1% or 512.4 points to close at 25,332.18. The S&P 500 also climbed 2.1% to close at 2,803.27. Meanwhile, the Nasdaq Composite Index closed at 7,527.12, jumping 2.7% or 194.1 points. The fear-gauge CBOE Volatility Index (VIX) decreased 10% to close at 16.97. A total of 7.53 billion shares were traded on Tuesday, higher than the last 20-session average of 7.16 billion. Advancers outnumbered decliners on the NYSE by a 4.07-to-1 ratio. On Nasdaq, a 3.18-to-1 ratio favored advancing issues.
How Did The Benchmarks Perform?
Notably, all three stock indexes recorded their largest single-day return in 2019 since Jan 4. The Dow closed in positive territory with 29 components of the 30-stock blue-chip index closing in the green while one finished in the red. TheS&P 500 also closed in the red.The Technology Select Sector SPDR (XLK) and Materials Select Sector SPDR (XLB) and Financials Select Sector SPDR (XLF) climbed 3.3% 2.8% and 2.7%, respectively. Notably, ten out of eleven sectors of the benchmark index closed in the green while one finished in the red. Moreover, tech-heavy Nasdaq Composite ended in positive territory due to strong performance by trade-sensitive large-cap stocks.
Powell Signals Rate Cut
On Jun 4, at the “Conference on Monetary Strategy, Tools and Communications Practices,” in Chicago, Fed chair Jerome Powell said that the central bank is watching current economic developments and will “act as appropriate to sustain the expansion.” He further said that the Fed does not know “how or when” global trade conflicts will be resolved. “We are closely monitoring the implications of these developments for the U.S. economic outlook.”
Powell’s remarks came one day after St. Louis Fed President James Bullard said rate cuts “may be warranted soon” amid the U.S.’s international trade disputes. Per Sarah Bloom Raskin, a former Fed governor, said that Powell has given “very strong signal” that the central bank is ready to cut interest rate.
According to CME FedWatch tool, 65% responders were hoping for a rate cut in 2019 on Jun 3. However, after Powell’s speech, more than 90% of the responders are expecting a rate cut by September and 80% thinks a likely second cut by the end of December.
Positive Developments on Trade War Front
According to a Bloomberg report, Senate Republicans have decided to oppose President Trump’s decision to impose 5% tariff on all imports from Mexico effective Jun 10 unless that country stop flow of illegal migrants to the United Sates. Trump has threatened to use his veto power to negate Senate Republicans. However, several Republican lawmakers have said that they have numerical superiority to cancel President’s veto.
Moreover, China Ministry of Commerce called for further talk to resolve the trade conflict with the United Sates. “The Chinese side always believes that the differences and frictions between the two sides in the economic and trade field will ultimately need to be resolved through dialogue and consultation,” a spokesperson from the Ministry of Commerce said in a statement.
Buoyed by Powell’s comment on rate cut and positive signs on trade war front, investors opted for risky assets like equities instead of safe-haven government bonds. Consequently, yields on benchmark 10-year Treasury Note increased to 2.14% from 2.06% traded a day earlier.
Surging yields on sovereign bonds raises hope for banking sector. Shares of major banks like The Goldman Sachs Group Inc. GS and JPMorgan Chase & Co. JPM gained 3.7% and 3.1%, respectively. JPMorgan Chase carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Department of Commerce reported that factory orders for U.S. made durable goods declined 0.8% In April. However, the consensus estimate was for a decline of 0.9%. New orders of U.S. manufactured goods fell 0.5% in April, the largest drop since April 2017.
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