Dow, S&P end in record territory after Powell boosts expectations for Fed rate cut

Dow, S&P end in record territory after Powell boosts expectations for Fed rate cut

UnitedHealth shares lead the Dow higher

The Dow and S&P settled at an all-time highs Thursday, after Federal Reserve Chairman Jerome Powell left investors feeling fairly confident about the odds of an interest rate cut later this month.

Powell testifying Wednesday before the House Financial Services Committee and Thursday in front of the Senate Banking Committee gave investors more hope that a rate cut is coming.

What are major benchmarks doing?
The Dow Jones Industrial Average DJIA, +0.85% gained 227.88 points, or 0.85%, to 27,088.08, while the S&P 500 index SPX, +0.23% ended 6.84 point higher at 2,999.91 a gain of 0.23%. The Nasdaq Composite Index COMP, -0.08% fell 6.49 points, or 0.08%, to 8,196.04.

On Wednesday, the Nasdaq gained 60.80 points, or 0.8%, closing out the session at a record 8,202.53. The Dow added 76.71 points, or 0.3%, to finish at 26,860.20, while the S&P closed 13.44 points higher, up 0.5%, at 2,993.07.

What’s driving the market?
Investors have mixed views on how much they expect the Fed to cut interest rates this year, but they do see some relief on the horizon by month’s end as the central bank keeps the economy’s health in focus.

“Markets were in buoyant mood on Thursday as Fed Chairman Jerome Powell gave his strongest indication yet that the Federal Reserve will slash interest rates at the July 30-31 meeting,” said Raffi Boyadjian, senior investment analyst at XM, in a note.

Later in the day, investors briefly were caught off guard following an afternoon U.S. Treasury bond sale that saw weaker-than-expected demand.

“Pricing didn’t go as well as expected and rates went up,” Randy Frederick, managing director of Trading & Derivatives at Schwab Center for Financial Research, told MarketWatch. “The market initially rallied on the prospect of a rate cut, but the long-end (of the yield curve) moved higher. It’s odd, but that seems to be the biggest thing to damper demand this afternoon.”

But investors still mostly cheered remarks by Powell on Wednesday and Thursday when he told Congress that uncertainty around trade policy tensions and the global economic outlook, along with persistently low inflation, were reasons to consider easing policy. Powell’s testimony affirmed expectations the central bank will move to cut interest rates when policy makers meet at the end of the month.

Taking questions from the Senate Banking Committee Thursday, Powell reinforced the message he sent yesterday, while making a case for why a ‘preemptive’ rate cut could be necessary, even if economic and job growth remain strong.

An important reading of consumer price inflation rose 0.1% in May, versus a 0.2% rise expected by economists polled by MarketWatch, with the core CPI, which strips out volatile food and energy prices, rising 0.3%, above the consensus expectations of 0.2%, and the fastest monthly gain since January of 2018.

Year-over-year, CPI inflation fell to 1.6%, from 1.8% in April, with core CPI rising to 2.1% in May, up from 2.0% in April. Though not the Federal Reserve’s preferred measure of inflation, the CPI data should factor into how aggressive the Fed will be in cutting interest rates in the coming months.

“It’s a little higher than we thought but it seems like it’s going to take a lot more than a monthly data point to push Powell away from his dovish stance,” wrote Mike Loewengart, vice president of investment strategy at E-Trade, in an email. “The Fed has pretty much made it clear that the negatives of a cooling economy and ongoing trade tensions outweigh the positives of a Goldilocks inflation number and last week’s solid jobs read.”

Investors will also continue to pay close attention to the developments on the international trade front, with the Washington Post reporting that the Trump administration is growing concerned about prospects for a trade deal with China.

President Trump elaborated on this concern, tweeting Thursday that China is “letting us down,” by not increasing purchases of agricultural products, that president says was part of the trade truce reached at the G-20 summit in June.

Meanwhile, the Trump administration is launching an investigation into France’s proposed tax on internet giants like Google parent Alphabet Inc. GOOG, +0.33% GOOGL, +0.28% Inc. AMZN, -0.81% and Facebook Inc. FB, -0.74% U.S. Trade Representative Robert Lighthizer’s agency will investigate the tax under Section 301 of the Trade Act of 1974, the same provision it used last year to investigate China’s technology policies, leading to tariffs on $250 billion worth of Chinese imports, the Associated Press reported.

New applications for jobless benefits for the week ended July 6 fell to 209,000, versus 221,000 the week prior.

Which stocks are in focus?
Cigna CI, +9.24% and CVSHealth CVS, +4.68% notched gains following news the Trump administration is dropping a plan to curb rebates that drug manufacturers pay to pharmacy-benefit managers such as Cigna’s Express Scripts.

Dow component UnitedHealth Group Inc. UNH, +5.53% which owns a subsidiary pharmacy benefit manger, led the blue-chip index higher, closing up 13.68%.

Shares of Delta Air Lines Inc. DAL, +1.16% rose 1.16%, after the air carrier reported that second-quarter revenue rose 8.7% in the second-quarter from a year ago, while revenue per mile per seat rose by 3.8%. and earnings growth beat analysts projections.

Unlike its competitors, Delta does not own any of Boeing 737 MAX jets which have been grounded for four months by the FAA. American, Southwest and United have lost a combined 72 jets from their fleets. While their shares have lagged behind the rest of the market, Delta’s have kept pace with it.

Bed Bath and Beyond Inc. BBBY, -3.04% reported large losses due to impairment charges for a second consecutive quarter Wednesday evening, though it beat analyst estimates for earnings when adjusting for those costs. Shares in the home goods retailer fell 3.04% Thursday

Shares of Weight Watchers International Inc. WW, +8.38% rose 8.38% Thursday, after J.P. Morgan analyst Christina Brathwaite said she was no longer bearish on the weight management and wellness company, citing her belief that subscriber trends have stabilized.

How are other markets trading?
The yield on the 10-year U.S. Treasury note TMUBMUSD10Y, -0.34% rose 5.8 basis points to 2.119%.

In Asia, stocks closed mostly higher Wednesday, with the Nikkei 225 NIK, -0.09% adding 0.5%, while the Shanghai Composite index SHCOMP, +0.18% rose 0.1% and Hong Kong’s Hang Seng HSI, +0.16% added 0.8%. European stocks closed lower, with the Stoxx Europe 600 SXXP, -0.12% losing 0.1%.

In commodities markets, the price of crude oil CLQ19, +0.60% fell 0.13% and the price of gold GCQ19, +0.34% fell 0.25%. The U.S. dollar DXY, -0.07% edged lower versus its major rivals.

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