The stock market notched a record-high close Thursday and the Dow topped 27,000 for the first time as easing trade tensions and the Federal Reserve’s fresh campaign to push down interest rates more than offset lingering economic worries.
Typically, the Fed cuts its key short-term rate amid a recession, limiting any upside for the market, says Nick Reece, portfolio manager for Merk Investments. But in congressional testimony this week, Fed Chairman Jerome Powell solidified expectations for the central bank to lower the rate this month with the economy still chugging along in a bid to head off a potential downturn.
“To the extent (the Fed is) cutting rates and it’s not a recession, that is going to be supportive of stocks,” Reece says.
Trump executive order: Organ transplants will fuel a little-known biotech company
Kidney dialysis stocks soar: Investors see Trump executive order as good news
The other dynamic powering stocks higher: Trade war fears repeatedly have driven the market down only to be at least partly alleviated.
“As the worst fears don’t materialize, that gives fuel to the bull market,” Reece says.
At the G-20 meetings late last month, President Trump and Chinese President Xi Jinping didn’t resolve their broad dispute but Trump agreed to put off a 25% tariff on the remaining $300 billion in Chinese imports not already subject to duties as talks continue.
As a result, stocks are climbing despite a slowing global and U.S. economy and many analysts’ forecasts for a recession next year, allowing both the bull market and economy expansion to extend record 10-year runs.
The Dow Jones industrial average closed up 228 points, or 0.85%, at 27,088. The Standard & Poor’s 500 index rose 6.8 points, or 0.23%.
The tech-heavy Nasdaq fell 6.5 points, Or 0.08%, at 8,196.
Ironically, Reece believes the broad market can rise another 10% this year as long as investor fears continue to keep the market volatile and keep euphoria at bay. The S&P 500 is up about 20% this year but just 12% above its early 2018 level.
On Wednesday, Fed Chairman Jerome Powell said that many Fed officials believe a weakening global economy and rising trade tensions have strengthened the case for a rate cut. The remarks came as Powell gave testimony before the House Financial Services Committee.
The market rallied through much of June after the central bank first signaled that it was prepared to cut rates to offset slowing global growth and the fallout from U.S. trade conflicts.
Chipmaker Nvidia was among the big gainers in the technology sector in early trading Thursday. The stock climbed 3.8%. CenturyLink led the gainers in the communications sector, rising 1.2%.
Mystery grows: Vatican opens tombs in search of missing girl’s remains
Hong Kong extradition bill: Parents, friends remember protester who died
Banks also helped lift the market. They got a boost from a pickup in the yield on the 10-year Treasury note, which rose to 2.08% from 2.06% late Wednesday. When bond yields rise, they push interest rates on mortgages and other loans higher, making them more profitable for lenders. Goldman Sachs Group gained 2.6%.
Energy stocks were the biggest laggard. Cimarex Energy dropped 3.8%. Real estate and materials stocks also fell.
CONSUMER PRICES: The Labor Department said Thursday that the consumer price index increased 1.6% in June from a year earlier. That is down from 1.8% in May and the second straight drop. It rose 2.1% from a year ago.
Inflation has been muted throughout the 10-year expansion, now the longest on record, even as the unemployment rate has dropped to a very low 3.7%. Federal Reserve Chairman Jerome Powell cited persistently low inflation on Wednesday as a justification for potentially lowering short-term interest rates at the Fed’s next meeting in late July.
TRADE TENSIONS: Retaliatory tariffs remain a worry for markets.
While China-U.S. trade tensions have calmed with a resumption of talks by phone between top envoys, friction with France looms after President Donald Trump’s administration launched an investigation into French plans for a special tax targeting big tech companies.
Contributing: Associated Press