Stocks Just Hit a Record, Thanks to the Fed


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It’s the Fed to the rescue. Again.

Stocks hit a record high on Thursday, a day after the Federal Reserve opened the door to interest rate cuts in the coming months. The signals sent by the central bank seemed to confirm growing certainty among investors that the Fed would lower rates this summer, in the face of a slowing global economy, downbeat signals from financial markets and uncertainty related to the United States-China trade war.

The S&P 500 closed up 1 percent, at 2,954.18, eclipsing the previous high-water mark for the benchmark index of American shares reached on April 30.

The market is now up more than 7 percent this month, a rally led by shares of materials, technology and consumer discretionary companies.

June’s bounce has repaired all the damage done during an ugly May, a slump set off in part when talks between China and the United States publicly fell apart in a storm of tweets, recriminations and the imposition of new tariffs. And the sell-off was accompanied by other indications that investors were betting on a darkening outlook for the global economy: tumbling oil prices, and falling bond yields.

But stocks stopped falling in early June, after a number of officials from the Federal Reserve reassured investors that the central bank could lower interest rates if the trade war began to show signs of hurting the economy.

The message got through. In the market for futures where investors bet on the movement of the Fed Funds rate — the rate the Fed targets to set monetary policy — investors began to increase wagers that the Fed would lower rates at its next monetary policy meeting in July. In May, the market was putting roughly 20 percent odds on such a move.

By early June, those odds had increased to roughly 70 percent. As the odds of an increase rose, fueled in part by more comments from the Fed chair, Jerome H. Powell, stocks began to climb back toward the high reached on Thursday.

The rebound in June is a repeat of a situation in January, when the central bank backed away from its plans to keep raising interest rates. Then the concern was that higher rates — on top of the trade war, slowing growth and the fact that the economic expansion is a decade old — would tip the United States economy into recession. So the retreat, a “pivot” in market terms, was welcome relief and led to the strongest start for stocks to a year since 1987.

“It was more than a pivot, it was a pivot plus a full capitulation,” said Bill Zox, chief investment officer for fixed income at Diamond Hill Capital Management, a money management firm in Columbus, Ohio. “That’s firmly the view of all markets: ‘The Fed will do what we want.’”

After the Fed’s monetary policy announcement on Wednesday, investors are putting the probability of a rate cut at the Fed’s next meeting in July at 100 percent.

Read more about the Fed and Wall Street


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