Dow jumps more than 500 points after Fed boss’ comments spark hopes of interest-rate cut
Dow Jones Industrial Average jumped more than 500 points Tuesday as investors welcomed signs that the Federal Reserve might cut interest rates to help buttress U.S. economic growth in the face of escalating trade wars.
Optimism about a resolution to one of those trade disputes and a rebound in technology shares also boosted the market. The benchmark S&P 500 index notched its best day since early January.
Federal Reserve Chairman Jerome Powell spurred the rally when he said the central bank was “closely monitoring” trade developments and would “act as appropriate” to sustain the U.S. economic expansion. Investors read his remarks as a signal that the Fed will likely cut interest rates this year.
Investors have been worried the expanding conflicts between the U.S. and some of its biggest trading partners could slow U.S. economic growth and stymie corporate profits. They’ve been dumping stocks for the past month and fleeing to safer holdings, such as bonds.
“The concern in the market is that economic data is going to worsen,” said Jeff Zipper, managing director at U.S. Bank Wealth Management. “If economic data worsens, then growth slows down. So obviously a rate cut would provide liquidity into the economy and the marThe ketplace, and that’s what investors are looking at right now.”
The Nasdaq composite rode the rally in technology stocks to a gain of 194.10 points, (2.7%) to 7,527.12. The index recouped the losses it racked up a day earlier, when tech stocks slumped over concerns that several big internet companies could face more scrutiny from antitrust regulators.
The S&P 500 index gained 58.82 points (2.1%) to 2,803.27, its best performance since Jan. 4. The Dow vaulted 512.40 points (2.1%) to 25,332.18.
The Russell 2000 index of small companies picked up 38.58 points (2.6%) to 1,508.56.
Major stock indexes in Europe also closed broadly higher.
Speaking at a Fed conference in Chicago, Powell said: “We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion.”
Powell didn’t explicitly say what the Fed would do. But his remarks fueled expectations that the central bank will cut rates at least once and possibly two or more times before year’s end, in part, because of the consequences of the trade war.
There is concern that the U.S. economic expansion, which next month will become the longest on record, could face growing risks of a recession as retaliatory tariffs weaken U.S. exports.
Investors in the futures market are now pricing in a 59% chance of a Fed rate cut by July.
“The market does not like uncertainty, so if we get more certainty as far what the Fed is going to do and what they’re saying, that bodes well for the market,” Zipper said.
The market’s robust early gains this year were partly fueled by the Fed’s move to take a more patient approach to its rates policy after steadily raising rates for two years. Investors have been hoping it will go further and cut interest rates to give economic growth another push.
Fresh hopes for a resolution in the U.S.-Mexico trade dispute also helped put investors in a buying mood.
Mexican Foreign Minister Marcelo Ebrard said that Mexico can likely reach a deal with the U.S. at a meeting Wednesday. That would stave off President Donald Trump’s threat to place 5% tariffs on Mexican goods beginning June 10 as part of a broader immigration dispute.
The threat of a trade battle with Mexico has worried investors already nervous about the ongoing trade war between Washington and Beijing.