Stocks climbed Wednesday, adding to gains that were triggered in the prior session on indications that the Federal Reserve might cut interest rates to boost the economy.
The Dow Jones Industrial Average gained 134 points, or 0.5%, while the S&P 500 added 0.4% and the Nasdaq Composite rose 0.3%.
The gains for stocks in the Dow industrials and S&P 500 followed the two indexes’ best day in five months Tuesday. They climbed more than 2% after supportive commentary from Federal Reserve officials buoyed investor confidence, which has been hit by concerns over Washington’s trade disputes in recent months.
Also Tuesday, Senate Republicans warned they may block the White House’s planned tariffs on Mexico. President Trump’s threat of imposing escalating tariffs on all Mexican imports rattled investors last week, sending stock and bond yields around the world sharply lower.
“Any whiff of positive development around trade will get you a positive response from the market,” said Matt Miskin, market strategist at John Hancock Investment Management.
Mr. Trump proposed to introduce progressively higher tariffs on Mexican exports if the country doesn’t restrict the flow of migrants passing through its borders. Duties would start at 5% before ratcheting up to 25% by October.
Technology stocks bounced back after suffering a brutal start to the week. On Monday, tech giants Facebook and Alphabet tumbled more than 6% after a report that the Federal Trade Commission had secured rights to begin a potential antitrust investigation into the social media company and on a report that the Justice Department had been given chief oversight over a Google probe. On Wednesday, the S&P 500’s tech sector rose 1% in recent trading.
Also on the rise Wednesday were shares of Salesforce.com Inc., which added 3.6% after the business-software developer raised its earnings outlook and posted record first-quarter revenue.
Aiding the broad market rally were remarks from Fed Chairman Jerome Powell, who said on Tuesday that the central bank was monitoring the recent escalation in trade tensions and indicated it would act appropriately to sustain U.S. economic expansion. Investors took his comments to be a reference to a forthcoming rate cut. Lower interest rates reduce borrowing costs for businesses, stimulating investment.
“Markets are happy to focus on Fed support, but with the U.S. Commerce Department promising retaliation in the event of China’s rare-earths threat, this trade war looks set to get worse before it gets better,” said London Capital Group’s head of research, Jasper Lawler.
Beijing has indicated it could restrict exports of rare-earth elements to hit back against U.S. tariffs. China is the global leader in production of the materials, which are key building blocks for many technology products.
A drop in the price of oil and shares of biotechnology companies threatened to deflate the broad indexes’ rises. Oil prices were on track to close in a bear market Wednesday, dropping more than 20% below their April peaks. U.S.-traded crude oil recently fell 3.8% to $51.47 a barrel, leading energy stocks in the S&P 500 down 1.4%.
The Nasdaq Biotechnology Index also swooned in recent trading, slipping 0.3% and weighing on the Nasdaq. The biotech index’s biggest decliner was ChemoCentryx, which slid more than 16% after biopharma peer InflaRx was slammed, dropping 90% after a drug failed to show a statistically significant response in patients.
Another potential overhang to stocks is concern about the pace of economic growth. The World Bank has lowered its outlook for global growth, noting that international trade and investment flows dropped faster than expected in the first six months of the year, curtailing economic activity. Global economic growth is on track to be the weakest since 2016, while trade growth is set to be the weakest since the financial crisis more than a decade ago, according to the bank’s forecasts.
In Europe, the Stoxx Europe 600 was up 0.2%, while Germany’s DAX fell 0.2%.
The British pound rose to a nine-day high against the dollar after the U.K. services purchasing managers index rose more than expected in May. The expansion provided some reassurance about the health of the British economy, though some observers remained circumspect.
The gains in Europe followed a positive session in Asia, with Hong Kong’s Hang Seng Index up 0.5%, Korea’s Kospi index up 0.1% and Japan’s Nikkei jumping 1.8% higher.
The yield on 10-year U.S. Treasurys edged lower on Wednesday to 2.118%, from 2.119% on Tuesday. Yields on German 10-year bunds were at minus 0.222%, having earlier hit a fresh low of minus 0.224%.
Bond yields, which move in the opposite direction of prices, have come under pressure in recent months as investors pursued low-risk assets like government debt.
Write to Corrie Driebusch at corrie.driebusch@wsj.com
2019-06-05 14:56:00Z
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