Stocks climbed to a record high 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.
Despite the trade battle, slowing global growth and flagging business confidence, the new high suggests investors are still bullish.
“The market is looking through all the noise and it sees that the economy is still growing, corporate earnings are still growing and the inflation rate is still low,” says Jason Ware, chief investment officer of Albion Financial Group
The Standard & Poor’s 500 index rose 28 points, or nearly 1%, to finish at a record 2,954, above its prior closing high on April 30.
The Dow Jones industrial average rose 249 points, or nearly 1%, to 26,753. And the tech-heavy Nasdaq jumped 64 points, or 0.8%, to 8,051.
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Ware believes prices for S&P 500 stocks aren’t too frothy at about 16.5 times projected earnings in the year ahead, in line with the average of the past five years.
Some analysts say developments in the trade fight over the next few weeks could determine whether recent stock gains are sustained.
“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 it 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.
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 market’s gains, he says.
The S&P 500 index has now wiped out its losses from May, when growing economic jitters prompted a dive of more than 6%.
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 Fed stood ready to stabilize economic growth.
Contributing: Associated Press