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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