The Nasdaq Composite finished at a fresh record high on Wednesday as stocks rallied across the board.
It was quite a session for equities, which were driven higher after Federal Reserve Chairman Jerome Powell hinted that a rate cut is coming.
During the trading day, the Dow, the S&P 500 and the Nasdaq all hit new intraday records, and the S&P crossed 3,000 points for the first time ever.
The Dow closed 0.3%, or 77 points, higher, while the S&P finished up 0.5%. The Nasdaq closed up 0.8% at a new record high of 8,203.
During the first day of his biannual congressional testimony on Wednesday, Powell pointed at economic crosscurrents including “uncertainties around trade tensions and concerns about the strength of the global economy [that] continue to weigh on the US economic outlook.” He also noted inflation continued to run below the Fed’s target.
Investors read that as a sure sign that the Fed plans on cutting its interest rates at its next meeting later this month.
Stock futures had been in the red Wednesday morning but turned higher after the remarks were published ahead of the opening bell.
“The statement that Powell laid out set the tone. He said there are concerns and headwinds. It was certainly a dovish tilt,” said Minh Trang, senior FX trader at Silicon Valley Bank.
Market expectations of a near-term interest rate cut had dominated for weeks until last Friday’s jobs report. The better-than-expected data suggested that the economy might not need the boost that a rate cut would provide.
On Tuesday, Philadelphia Fed President Patrick Harker said he didn’t see any need for interest rate changes. He said he would consider a rate cut if the economy weakened substantially, according to The Wall Street Journal.
But Powell’s remarks on Wednesday seemed to send a clear signal to the market. On Thursday Powell will appear before the Senate Banking Committee. Expectations for a rate cut, measured by the CME’s FedWatch tool, returned to 100%, with 73% expected a 25 basis point cut. Expectations for any rate action had slipped to 96% earlier Wednesday, after sitting at 100% for week.
Lower interest rate make it cheaper for companies to borrow money and are thus supportive for the stock market.
The minutes of the Fed’s June meeting echoed the position Powell had taken during the June press conference, highlighting uncertainties and risks to the economy.
Yields on US government debt, which is in part driven by interest rate expectations, dropped initially on Powell’s remarks but bounced back. The 10-year US Treasury yield is little changed at 2.0630%.