With hopes of an impending Federal Reserve interest rate decrease, the Dow Jones Industrial Average keeps rising and breaks records one after another. The Dow Jones led the way as most U.S. market indices recorded increases on Tuesday.
Economic Data and Fed Expectations
Recent government data revealed that U.S. retail sales remained stable in June, with import prices also holding steady. According to the FedWatch tool, there is a 91.4% probability of a 0.25% interest rate cut at the Federal Reserve’s September meeting, with an 8.4% chance of a 0.5% rate cut. For the upcoming July meeting, the market anticipates a 93.3% likelihood of maintaining current interest rates.
Dow Jones Rallies 700 Points
The Dow Jones surged by 742.76 points, or 1.85%, closing at an all-time high of 40,954.48. This remarkable gain marks the index’s best session since June 2023. The rally reflects traders’ confidence in an imminent rate cut, which is expected to benefit small-cap stocks and industrials more than the cash-rich, mega-cap technology stocks currently buoyed by artificial intelligence (AI) optimism.
Ross Mayfield, investment strategist at Baird, noted, “There’s a lot of momentum behind this rotation trade from big-cap tech into small caps and into the average stock. It’s a rotation, but it’s much more about the upside in the more cyclical sectors in the market than a referendum on AI’s long-term potential.”
Retail Sales and Market Sentiment
The latest retail sales data, which showed no change in June, reassured investors that the Fed’s efforts towards a “soft landing” for the economy are on track. Excluding autos, June sales increased by 0.4%, surpassing the 0.1% consensus forecast.
Quincy Krosby, chief global strategist at LPL Financial, commented, “This data should be positive for markets. Investors prefer the launch of a Fed easing cycle to begin with a still solid economic backdrop.”
Dow Jones Hits Record Peaks Amid Rate Cut Hopes
The DJIA continued its record-setting streak, closing at 40,961.55 on Tuesday, bolstered by rising hopes of a September rate cut. The CME FedWatch Tool indicates a near-certain expectation of at least a quarter-point rate cut in September, with the upcoming July 31 FOMC meeting expected to maintain current rates as policymakers seek further confirmation of easing inflation.
Highlights and Key Performers
UnitedHealth Group Inc. contributed significantly to the Dow’s rise, soaring 6.11% to $546.86 per share after reporting better-than-expected Q2 earnings. The majority of the Dow Jones components ended the day in the green, although tech stocks and AI-related companies experienced minor losses as investors shifted towards sectors more sensitive to borrowing costs.
In summary, the Dow Jones Industrial Average is on a robust upward trajectory, driven by solid economic data and strong market sentiment regarding potential interest rate cuts. As the index continues to break new ground, investors remain optimistic about the future performance of the broader market.
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