U.S. stocks rallied for the second successive days on expectations that the Fed will reduce benchmark interest rate within next 2-3 months. Moreover, some positive developments have taken place on the trade war front. All three major stock indexes finished in the green.
The Dow Jones Industrial Average (DJI) surged 0.8% or 207.39 points to close at 25,539.57. The S&P 500 also soared 0.8% to close at 2,826.15. Meanwhile, the Nasdaq Composite Index closed at 7,575.48, gaining 0.6%. The fear-gauge CBOE Volatility Index (VIX) decreased 5.2% to close at 16.09. A total of 7.02 billion shares were traded on Wednesday, lower than the last 20-session average of 7.12 billion. Advancers outnumbered decliners on the NYSE by a 1.09-to-1 ratio. On Nasdaq, a 1.34-to-1 ratio favored declining issues.
How Did The Benchmarks Perform?
The Dow closed in positive territory with 24 components of the 30-stock blue-chip index closing in the green while six finished in the red. The S&P 500 also closed in the green.The Real Estate Select Sector SPDR (XLRE) and Utilities Select Sector SPDR (XLU) climbed 2.3% and 2.1%, respectively. However, Energy Select Sector SPDR (XLE) declined 1.1%. 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.
Investors Expect 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.”
According to CME FedWatch tool, 65% responders were hoping for a rate cut in 2019 as of Jun 3. However, after Powell’s speech, more than 90% of the responders expected a rate cut by September and 80% thinks a likely second cut by the end of December. Some market watchers are hopeful that central bank will cut rate in July.
Positive Developments on Trade War Front
On Jun 5, President Donald Trump said that he thinks Mexico wants to seal a deal to prevent a new fresh trade conflict. According to a Bloomberg report, Senate Republicans have decided to oppose President Trump’s decision to impose 5% tariff on all imports from Mexico.
These duties will come into to force from Jun 10 unless Mexico stops the 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 the numerical superiority to cancel President’s veto.
Meanwhile, Treasury Secretary Steven Mnuchin is scheduled to meet with People’s Bank of China Governor Yi Gang this weekend. This will be the first in-person meeting between top officials of the two countries after trade negotiations abruptly broke down on May 5. On Jun 4, China Ministry of Commerce called for further talks to resolve its trade conflict with the United Sates.
Crude Oil Price In Bear Territory
The U.S. Energy Information Administration reportedthat U.S. commercial crude inventories jumped by 6.8 million barrels during the week ended May 31. This was thelargest weekly inventory increase in five weeks and the highest level recorded in nearly two years.
Consequently, price of U.S. benchmarkWest Texas Intermediate crude (WTI) declined $1.80 or 3.4% to settle at $51.68 per barrel, its lowest close in nearly five months. Notably, WTI crude price entered bear market territory as it settled 22% below its most recent high of $66.30 recorded on April 23.
Likewise, price of global benchmark Brent crude declined $1.34 or 2.2% to settle at $60.63 per barrel, its lowest finish since Jan 28. Brent is currently trading more than 18% below its recent high recorded in April.
As a result of crude oil plunge, shares of oil behemoths like Exxon Mobil Corp. XOM and BP plc BP lost 0.8% each. Both stocks currently carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
On Jun 5, the Institute for Supply Management (ISM) announced fresh figures for its service index for the month of May. The indexcame in at 56.9% for the month of May, surpassing the consensus estimate of 55% and previous month’s reading of 55.5%. May’s reading was the second highest so far in this year. A whopping 16 out of 17 industries expanded last month.
ADP and Moody’s Analytics reported that private sector payrolls increased by a mere 27,000 in May, significantly below the previous month’s addition of 271,000.
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