Wall Street continued its bull run on Thursday on the back of positive developments on trade war front and monetary stimulus injected by the European Central Bank. Investors are expecting a second rate cut by the Fed next week. All three major stock indexes closed in the green.
The Dow Jones Industrial Average (DJI) gained 0.2% to close at 27,182.45. The S&P 500 increased 0.3% points to close at 3,009.57. The Nasdaq Composite Index closed at 8,194.47, climbing 0.3%. The fear-gauge CBOE Volatility Index (VIX) decreased 2.7% to close at 14.22. A total of 7.51 billion shares were traded on Thursday, higher than the last 20-session average of 6.79 billion. Advancers outnumbered advancers on the NYSE by a 1.24-to-1 ratio. On Nasdaq, a 1.19-to-1 ratio favored advancing issues.
How Did The Benchmarks Perform?
The Dow closed in positive territory for seventh consecutive day with 22 components of the 30-stock blue-chip index closing in the green while the remaining 8 ended in red. This marked the index’s largest winning streak since May 14, 2018.
The S&P 500 also ended in the green for three straight days. The Materials Select Sector SPDR (XLB) and the Real Estate Select Sector SPDR (XLRE) gained 0.8% and 0.6%, respectively. Notably, nine out of total 11 sectors of the benchmark index closed in the green while two finished in red.
The Nasdaq Composite finished in the green for second successive days due to strong performance of semiconductor stocks. Advanced Micro Devices Inc. AMD, with a Zacks Rank #3 (Hold) gained 1.5%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
ECB Injects Massive Stimulus
On Sep 12, the ECB cut its main deposit rate by 10 basis points to -0.50%. This simply means that commercial banks need to pay the ECB to hold their overnight excess cash balance. This was the first rate cut by the central bank since early 2016 despite the fact that the benchmark is already in negative territory.
However, the central bank left twoother major benchmark rates unchanged. Rate on main refinancing operations and the marginal lending facility remained same at 0% and 0.25%, respectively.
However, the ECB eased the terms of its long-term lending facility through which some banks will avail loans at a cheaper rate. Additionally, introduction of a tiered system by the central bank will enable struggling banks to be exempted to pay to the ECB while holding overnight excess cash balance with it.
Meanwhile, the central bank of the Eurozone reintroduced the quantitative easing program. Effective Nov 1, the ECB will purchase €20 billion of bonds each month from banks in order to improve liquidity in the systems so that Eurozone banks can lend more to their clients. Per the governing council of the ECB, this asset purchase program will continue “for as long as necessary to reinforce the accommodative impact of its policy rates.”
Possibility of an Interim Trade Deal
On Sep 12, President Donald Trump told reporters that he is not averse to an interim trade deal with China although his preference will be to have a full agreement resulting in a complete trade deal with the Asian economic powerhouse.
Earlier that day, Bloomberg reported that high-level officials of the Trump administration are considering offering an interim trade deal to China. Bloomberg cited five internal sources that say the U.S. government would like to delay imposing new tariffs on Chinese goods or it may even roll back some tariffs which are already levied on China for the first time since the trade dispute started in March 2018.
In return, the U.S. government wants China to substantially increase imports of domestic agricultural products. More importantly, the Chinese authority must comply with their earlier commitments related to the use and application of intellectual properties, before the trade negotiation broke down in May.
The Department of Commerce reported that consumer price index in August rose 0.1% compared with 0.3% in July. However, the data was in line with the consensus estimate. The consumer price index rose 1.7% year over year in August. The core consumer price index (excluding volatile food and energy costs) rose 0.3% in August, remained flat sequentially but surpassed the consensus estimate of 0.2%. The core consumer price index increased 2.4% year over year.in August.
The Department of Labor reported that U.S. initial claims declined by 15,000 to its five-month low level of 204,000 for the week ended Sep 7. The figure was better than the previous week’s revised figure of 219,000 as well as consensus estimate of 215,000. Number of continuing claims dropped 4,000 to 1.67 million.
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