The Dow and the broader stock market are at all-time highs, with six record closes this week alone, including Friday’s triple record.
This is how we got here.
It all came down to the Federal Reserve and interest rates once again. Fed Chairman Jerome Powell gave his bi-annual congressional testimony on Wednesday and Thursday, and his comments fueled hopes for a rate cut.
Market expectations for a rate cut had quivered after last week’s better-than-expected jobs report. An economy with a healthy job market should need stimulus.
The central bank is widely expected to lower rates to boost the economy at its July 31 meeting — but Wall Street is still debating whether it will be a quarter-percentage-point or a half-point cut. The CME’s FedWatch tool suggests a 78% probability for a quarter-point cut.
Stocks started the week lower before Powell came to the rescue. The central banker pointed at uncertainties surrounding trade and global growth, and also noted that inflation remained below target. When core consumer price inflation for June rose to 2.1% on Thursday, Powell stuck to the script and stocks rallied further.
“Powell’s appearance Wednesday was extremely well received, with the Fed Chairman giving us as dovish a message as he was ever likely to,” said Craig Erlam, senior market analyst at Oanda in a note.
“There was no attempt to discourage investors from fully pricing in a July cut so that looks as close to a certainty as you can expect to see.”
Investors appear encouraged that it won’t be the last cut. Powell’s gloomier assessment of the outlook appear to indicate future cuts.
On Friday, the producer price index for June, another measure of inflation, slipped to 1.7% year-over-year, down from the prior month.
The Dow jumped 244 points, or 0.9%. The Nasdaq advanced 0.6%, while the S&P 500 gained 0.5% and closed above 3,000 for the first time ever.