Stocks were on pace to set a new record Thursday on a strong signal that the Federal Reserve stands ready to cut interest rates and hopes for a truce in the U.S.-China trade war.
But the broad market pulled back after hitting a new intraday high – a sign, some analysts say, that tangible progress in the trade fight will be the more critical development.
“The market is trying to sort things out,” says David Joy, chief market strategist for Ameriprise. “The Fed is paying attention – that’s good…But over the intermediate and long-term it’s trade” that matters. The U.S.-China trade standoff, he notes, has dampened business confidence and investment.
The Fed held rates steady Wednesday but indicated t could reduce them for the first time in more than a decade at a meeting in late July. Fed fund futures markets expect two cuts this year. Economists say that could happen if President Trump and Chinese President Xi Jinping, or their trade envoys, don’t at least agree to shelve tariffs on the remaining $300 billion in Chinese imports not already subject to duties at the G-20 meetings in Japan next week.
The Standard & Poor’s 500 index touched a new intraday high of 2,955 before edging back to 2,943 in mid-day trading, a rise of 17 points, or 0.6%, over Wednesday’s close. That’s just below it’s all-time closing high of 2,945. The Dow Jones industrial average rose 156 points, or 0.6%, to 26,661. And the tech-heavy Nasdaq jumped 44 points, or 0.55%, to 8031.
Noting interest rates are already low, Joy says the Fed can only do so much. A deal to suspend new tariffs while negotiations continue will be needed to sustain the markets gains, he says.
The S&P 500 index has now wiped out its losses from May, when growing economic jitters prompted a 6.6% dive.
Technology stocks were the biggest gainers in a sign that investors are in a bullish mood and hungry for riskier holdings. Oracle rose 6.5% after it reported solid financial results. Microsoft gained 1.1%. Health care and industrial stocks also rose.
Every major sector gained ground and an overwhelming majority of companies trading on the New York Stock Exchange moved higher. Safe-play stocks like utilities lagged the market.
The market has been moving higher all week as investors became more hopeful that the U.S. and China could eventually resolve their damaging trade war and that the Federal Reserve stands ready to stabilize economic growth.
Oil prices surged 4.4% after tensions between the U.S. and Iran tightened and raised fears that oil shipments through the Strait of Hormuz could be compromised. Iran’s Revolutionary Guard said it shot down a U.S. drone on Thursday over Iranian airspace. The drone shooting follows last week’s attack on two oil tankers near the Gulf of Oman.
Cruise line operators were among the few losers in the early going after Carnival slashed its profit forecast for the year. It cited technical issues with its Vista ship. It also cited a ban on U.S. cruises to Cuban ports and an economic slowdown in Europe, which both have broader implications for the sector. Carnival sank 8.7%, Royal Caribbean fell 1.9% and Norwegian fell 1.7%.
Contributing: Associated Press