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Stock market hits new highs after Powell boosts rate-cut expectations
10-Jul-19 16:15 ET
Dow +76.71 at 26860.29, Nasdaq +60.80 at 8202.53, S&P +13.44 at 2993.07

https://www.briefing.com/investor/markets/stock-market-update/2019/7/10/stock-market-hits-new-highs-after-powell-boosts-ratecut-expectations.htm

[BRIEFING.COM] The S&P 500 gained 0.5% on Wednesday, briefly surpassing 3000 for the first time after Fed Chair Powell fueled the market's expectations for a rate cut at the July 30-31 FOMC meeting. The Dow Jones Industrial Average (+0.3%) and the Nasdaq Composite (+0.8%) also set new intraday highs with the Nasdaq finishing at a record close. The Russell 2000 increased 0.2%.

Fed Chair Powell took to Capitol Hill for his semiannual testimony on monetary policy, but the market didn't have to wait for it to begin to hurriedly leap to record highs. The market received Mr. Powell's prepared remarks before his testimony, and the market interpreted the written statement as a strong case for at least a 25-basis points rate cut given the uncertainty in the economic outlook.

There was already a 100% implied likelihood for a 25-basis points cut in the fed funds rate prior to today, according to the fed funds futures market. The probability for a 50-basis points cut, however, did increase to 26.6% from 3.3% yesterday. Contributing to the recalculation was Fed Chair Powell saying that the stronger-than-expected June employment report did not alter the Fed's mindset, contrary to the market's thinking last Friday.

The dovish tone helped eight of the 11 S&P 500 sectors finish higher. The S&P 500 energy sector (+1.4%) led the advance, buoyed by higher oil prices ($60.48/bbl, +$2.69, +4.7%) amid bullish inventory data and supply disruption in the Gulf of Mexico. The financials (-0.5%), industrials (-0.3%), and materials (-0.2%) sectors were the only sectors that finished lower.

The Fed also released the minutes from the June FOMC meeting, although market reaction was muted as Fed Chair Powell's comments provided a more updated view on monetary policy. Mr. Powell will head back to Congress tomorrow to conclude his testimony.

Shorter-dated U.S. Treasuries increased noticeably on growing expectations for a sharp rate cut, driving the 2-yr yield down eight basis points to 1.82%. The 10-yr yield increased one basis point to 2.06%. The U.S. Dollar Index declined 0.4% to 97.10.

Separately, American Airlines (AAL 32.94, +0.58, +1.8%) was a notable gainer on Wednesday after it raised its Q2 guidance for unit revenue and pre-tax margin. Deere (DE 160.81, -2.54) fell 1.6% after UBS downgraded the stock to Neutral from Buy, although it did raise its price target to $167.

Reviewing Wednesday's economic data, which included Wholesale Inventories for May and the weekly MBA Mortgage Applications Index:

Wholesale inventories increased 0.4% in May, as expected, on top of an unrevised 0.8% increase for April. Wholesale sales increased 0.1% following an unrevised 0.4% decline in April.
The key takeaway from the report is that inventory growth continues to outpace sales growth on a year-over-year basis, which should help keep price pressures in check.
The weekly MBA Mortgage Applications Index declined 2.4% following a 0.1% decline in the prior week.

Looking ahead, investors will receive the Consumer Price Index for June, the weekly Initial and Continuing Claims report, and the Treasury Budget for June on Thursday.

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