A stock market already goosed by fresh optimism on the U.S. trade standoff with Mexico picked up further momentum Tuesday after the head of the Federal Reserve suggested the central bank could cut interest rates in response to the latest trade battles.
“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,” Fed Chairman said in a speech at the Federal Reserve Bank of Chicago.
The Dow Jones industrial average, already up about 300 points by midmorning, climbed another 100 points or so after Powell’s 10 a.m. ET comments.
Powell’s remarks followed St. Louis Fed Chairman James Bullard’s comments Monday that a rate cut “may be warranted soon.”
A few weeks ago, President Donald Trump said he would increase tariffs from 10% to 25% on $200 billion in Chinese imports and begin the process of slapping the remaining $300 billion in shipments from that country with similar duties.
Then last week, Trump said he would hit Mexico with escalating tariffs to pressure the country to do more to halt illegal immigration from Central America through the Mexican border.
U.S. stocks were already headed broadly higher in early trading Tuesday on Wall Street after comments from Mexico’s foreign minister injected some optimism into a developing trade dispute.
Marcelo Ebrard said Mexico can likely make a deal with the U.S. when officials meet on Wednesday and stave off U.S. plans to place 5% tariffs on Mexican goods. President Donald Trump plans on imposing the tariffs beginning June 10 as part of a broader immigration dispute with Mexico.
The threat of a trade battle with Mexico comes with investors already worried about the escalating trade war between the U.S. and China. Investors spent May fleeing to safer holdings, sending the market to its first monthly loss of the year.
Strong gains by technology stocks Tuesday led the broader market higher and marked a sharp turnaround for the sector. On Monday, technology companies slumped over concerns that several internet companies could face more scrutiny from antitrust regulators.
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Banks also posted gains as lower bond prices pushed yields on the 10-year Treasury higher. Banks benefit from higher yields because they can charge more interest on loans. Bank of America rose 2.3% and Citigroup rose 2.4%.
Utilities lagged the market in another sign that investors were shifting funds away from safe-play holdings and into riskier, but potentially more profitable investments.
The S&P 500 index rose 0.8% as of 10:10 a.m. Eastern time. The Dow Jones Industrial Average rose 229 points, or 0.9%, to 25,049. The technology-heavy Nasdaq composite rose 0.9%.
Contributing: Associated Press