Dow jumps over 500 points amid hopes of Fed rate cut
The Dow Jones Industrial Average jumped more than 500 points Tuesday as investors welcomed signs that the Federal Reserve may cut interest rates to help support 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 likely will cut interest rates later 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 marketplace, 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, or 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, or 2.1%, to 2,803.27, its best performance since Jan. 4. The Dow vaulted 512.40 points, or 2.1%, to 25,332.18.
Major stock indexes in Europe also closed broadly higher.
Speaking at a Fed conference in Chicago, Mr. 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.”
Mr. Powell didn’t 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 pricing in a 59% chance of a Fed rate cut by July.
Chipmakers were among the biggest gainers in the technology sector. Nvidia jumped 6.9% and Advanced Micro Devices climbed 7.2%. Other technology companies rallied. Microsoft rose 2.8% and Apple added 3.7%.
Banks also posted solid gains as bond prices fell, driving yields on the 10year Treasury note to 2.12% from 2.08% late Monday. Banks benefit from higher yields because they can charge more interest on loans. Bank of America rose 4.6% and Citigroup gained 5.2%.