Stocks Close Higher, Adding to Big June Gains, After Fed Hints a Rate Cut Could Be Near
Stocks rose on Wednesday, bolstering their gains for the month, after the Federal Reserve opened the door for looser monetary policy in the near future.
The Fed kept interest rates unchanged at the meeting, as was widely expected. While not outright signaling a cut was ahead this year, the Fed did drop the word â€œpatientÂ â€ from its statement and said it would â€œact as appropriateâ€ to sustain the economy.Â
The central bankâ€™s rate projections, released alongside the statement on Wednesday, showed that eight Fed members see a cut this year, which traders took as further sign the central bank was close to cutting rates. Its median forecast, however, still reflected no cuts this year, but additionalÂ easing in 2020.
Fed Chair Jerome Powell also said in a news conference after the announcement that some Fed officials believed the caseÂ for easier monetary policy had strengthened.Â
Health care stocks, whichÂ typically perform well after the Fed cuts rates, were the best performers on Wednesday. The sector rose 1%, led by gains in Allergan and DaVita.
â€œThis was our baseline scenario. The Fed opened the door for cuts. They maintained some independence from some of the outreach for lower rates coming out of the administration,â€ said Gregory Faranello, head of U.S. rates at AmeriVet Securities.Â â€œShort term, itâ€™s going to depend on the data. If the data warrants a cut, the chairman is saying the Fed is prepared to adjust policy.â€
Treasury yields fell following the announcement, pressuring bank shares. The benchmark 10-year yield traded down at 2.02%. Citigroup, Morgan Stanley, J.P. Morgan Chase and Bank of America all traded lower.
Traders are pricing in easier monetary policy as soon as July. They were also betting on rate cuts coming in September and December, according to the CME Groupâ€™sÂ FedWatchÂ tool.
Expectations of lower rates helped the market rebound this month after a torrid performance in May. The S&P 500, Dow and Nasdaq are all up more than 6% in June.
Those expectations increased amid lingering trade worries and weaker economic data. China and the U.S. hiked tariffs on billions of dollars worth of their goods, stoking fears that tighter trade conditions could slow down the global economy.
â€œIt feels like the Fed doesnâ€™t know how to react to that,â€ said Kevin Barry, Kevin Barry, chief investment officer at Captrust Advisors. â€œThe main actors are Trump and Xi. If they are trying to increase animal spirits, then cutting rates wonâ€™t do that. Trump is the one that can increase animal spirits, not the Fed.â€
â€œAnimal spirits will be increased by a settlement between China and the U.S.,â€ he said.
The Fedâ€™s meeting came after Bloomberg News reported the White House looked for a way to demote Powell earlier this year.Â Larry Kudlow, director of the National Economic Council, told reporters Tuesday that Trump is not planning to demote Powell, however.
Powell said in the news conference that he intends to fully serve his four-year term, noting â€œthe law is clearÂ â€ on the matter.
â€” CNBCâ€™s Silvia Amaro and John Melloy contributed to this report.
Published Wed, Jun 19 2019 by Fred Imbert