S&P 500 Hits Record Close After Fed Hints of Interest-Rate Cut
June 20 2019 - 5:53PM
Dow Jones News
By Jessica Menton
The S&P 500 notched a record Thursday, marking a resurgence
for the stock market after global trade tensions and uncertainty
surrounding central-bank policy battered stocks last month.
The rebound comes after the U.S. Federal Reserve suggested it
would cut interest rates if the economic outlook doesn't improve in
the coming months. The signal spurred a global bond rally, sending
the yield on the benchmark 10-year Treasury yield down to 2% for
the first time since 2016.
Some analysts said that investors were becoming optimistic that
the Fed could be potentially using monetary-policy tools to help
head off a possible recession after the decadelong economic
expansion.
"The potential rate cuts may be more about fending off danger
than reacting to danger," said Michael Antonelli, market strategist
at investment bank Robert W. Baird & Co. "It's likely aimed at
extending the economic expansion and counteracting the effects of a
potential trade war. The market is looking at what the Fed is doing
and thinking that if the Fed is on our side, then this economic
expansion can continue."
On Thursday, the broad index rose 27.72 points, or 0.9%, to
2954.18. The Dow Jones Industrial Average surged 249.17 points, or
0.9%, to 26753.17, putting the blue-chip index within 0.3% of its
October closing record. The technology-heavy Nasdaq Composite added
64.02 points, or 0.8%, to 8051.34.
Trade tensions and uncertainty over central-bank policy had
rattled investors last month, with stocks posting their worst May
since 2010. But the potential for thawing trade relations between
Washington and Beijing have helped lift share prices this month,
putting the S&P 500 on pace for its best June since 1955.
Investors also received some clues from the Fed Wednesday on the
direction of interest rates. Fed Chairman Jerome Powell said the
bank will hold interest rates steady for now, but he dropped strong
hints that further easing would be necessary if global trade
tensions continue to damp economic growth. Many economists expect
the Fed to propose a 0.25-percentage-point cut at its July
meeting.
The recent bounce in stocks comes as President Trump is set to
meet with Chinese President Xi Jinping at the Group of 20 summit
next week in Japan.
"The market's reaction after the Fed meeting is kind of crazy,"
said Jonathan Corpina, senior managing partner at broker-dealer
Meridian Equity Partners. "I would have thought things would have
quieted down and investors would [have sold shares] after the
recent run-up. But investors are now really banking on the G-20
summit."
Stocks briefly eased from session highs in early-afternoon
trading as a drop in bond yields weighed on financial stocks, which
had slipped midday but ended 0.5% higher. A decline in bond yields,
especially for longer-dated debt, tends to hurt bank stocks because
their profit margins tend to expand when there is a bigger
difference between short-term deposit costs and longer-term lending
rates.
U.S. 10-year Treasury yields briefly dipped below 2% for the
first time since 2016, before recovering slightly, and settled at
2.001% from 2.023% Wednesday. Bond yields move in the opposite
direction to prices.
"For the financial sector, there's a big overhang with the banks
now because having lower rates isn't good for earnings growth,"
said R.J. Grant, director of equity trading at KBW Inc. "Some
investors had been positioning for a less-dovish Fed, buying some
beaten-up corners of the market like financials thinking the Fed
would be more hawkish. That didn't happen. More than anything, it
set some positioning off kilter."
Energy shares in the S&P 500 led the broader market higher,
with the sector gaining 2.2%. Shares of U.S. oil producers rose,
with Whiting Petroleum and Centennial Resource Development jumping
8.3% and 6%, respectively.
The gains were driven by a sharp rise in oil prices after Iran
said it shot down a U.S. military drone. U.S. oil prices rose 5.4%
to settle at $56.65 a barrel.
"Risk is being embraced more following the Fed meeting, which is
helping stocks broadly," said J ustin Wiggs, managing director in
equity trading at Stifel Nicolaus. "The pop in crude prices has
forced investors to take a look back at the energy space."
The dollar dropped broadly against major currencies. The WSJ
Dollar Index, which measures the dollar against a basket of
currencies, fell 0.7%. Meanwhile, gold surged 3.6% to $1,392.90 per
troy ounce as the prospect of lower interest rates spurred
investors to seek returns from alternative assets.
In Thursday's action, Slack Technologies made its debut on the
New York Stock Exchange, closing at $38.62 to give it a fully
diluted valuation of about $23.2 billion.
Elsewhere, the benchmark Stoxx Europe 600 index climbed 0.4%.
China's Shanghai Stock Exchange led gains in Asia, jumping
2.4%.
--Nathan Allen contributed to this article.
Write to Jessica Menton at Jessica.Menton@wsj.com
(END) Dow Jones Newswires
June 20, 2019 17:38 ET (21:38 GMT)
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