Dow Up 200 Points, Stocks Rally As Hope On Fed’s Rate Cut Continues

Great stock market news is being created by the strong performance of the U.S equity markets that continued on Wednesday riding on hopes of an impending Fed rate cut.

Wednesday’s session saw Dow Jones Industrial Average or precisely Dow Jones soaring 207.39 points or 0.8 percent to 25,539.57. The S&P 500 and Nasdaq Composite also closed 0.8 percent and 0.6 percent higher.

Investors became confident after signals of an impending rate cut by the Federal Reserve as a panacea to ease the hurt market sentiments from trade battles.

On Tuesday, Dow surged a whopping 500 points after Fed Chair Jerome Powell stated that an interest rate cut will not be ruled out.

What is interesting is that the continued bang in equity market comes after relegating concerns over the economy amplified by weak economic data and escalating trade tensions.

Segment wise, tech shares jumped 1.4 percent on Wednesday led by Apple. The utilities and real estate sectors made a good show.

Apple (aapl stock) jumped 1.6 percent after CEO Tim Cook rejected reports that the company is being targeted by China and made clear that there are no issues in the China market.

The consumer goods sector rose more than 1 percent, led by Campbell Soup’s good performance.

Rate cut probability high in July

According to reports, traders see a 72 percent chance of a rate cut at the Fed’s July 31 meeting. But they bet a lower probability of around 23 percent in the June 19 meeting. The policy rate currently hovers between 2.25 percent to 2.50 percent.

The Fed chief’s words were re-assuring when he said the apex bank is watching the current developments in the economy and will do what it requires to “sustain the expansion.”

Tobias Carlisle, founder of Acquirers Funds said the Fed is accommodative.

“They’re inclined to cut rates by 75 basis points by the end of the year; I think it will be 25 by the end of the year, depending on what happens with Mexico and other things like that,” Carlisle noted.

Fed Vice Chairman Richard Clarida also indicated that the central bank may cut interest rates if trade battles continue to roil the economic activity.

St. Louis Fed President James Bullard was more candid when he said uncertainty around tariffs and subdued inflation may force the hand of the central bank to slash rates.

Explicating the intent behind Fed officials’ words, Gary Pzegeo of CIBC U.S. Private Wealth Management said Powell did not say anything earth-shattering, what is he saying is more of an accommodative language than the May Fed meeting when he was asserting that the “economy was in great shape.”

Slowdown worries expanding

Meanwhile, concerns over a slowdown in the American-economy are expanding. The latest is private payrolls for May released on Wednesday. It showed hiring had only a meager hike in May at 27,000, per data by ADP and Moody’s Analytics.

Dow Jones poll of economists expected an increase of 17,300 jobs. The actual data showed it was the worst in nine years.

“The slowdown in many non-labor economic statistics finally showed up at a slower rate of hiring,” commented Peter Boockvar, chief investment officer at Bleakley Advisory Group.

At the China trade front, Treasury Secretary Steven Mnuchin’s upcoming meeting with People’s Bank of China Governor Yi Gang will be a new signal. The meeting set for the weekend will be the first in-person meeting between the two sides after the recent flare-up.