Wall Street closes higher, lifted by dovish Fed comments and earnings
18-Jul-19 16:20 ET
briefing.com
Dow +3.12 at 27222.97, Nasdaq +22.04 at 8207.24, S&P +10.69 at 2995.11[BRIEFING.COM] The S&P 500 overcame a sluggish start to increase by 0.4% on Thursday, as dovish Fed commentary bolstered expectations for aggressive monetary policy. In addition, mostly positive reactions to earnings reports helped provide support for the market.
The Nasdaq Composite and the Russell 2000 both increased 0.3%. The Dow Jones Industrial Average finished flat, pressured by losses in shares of Boeing (BA 361.11, -8.41, -2.3%) and UnitedHealth (UNH 260.60, -6.05, -2.3%) with UNH unable to gain on positive earnings results.
New York Fed President Williams (FOMC voter) catalyzed a slow-moving market after he said that when interest rates are low and there are signs of economic slowing, it is better to lower rates and keep them low rather than keep the Fed's powder dry. The dovish commentary increased the probability for a 50-basis points rate cut at the July 30-31 FOMC meeting to 66.9% from 34.3% yesterday, according to the fed funds futures market.
Lower rates, which were seen across the U.S. Treasury yield curve, should continue to favor risk assets. The fed-funds sensitive 2-yr yield declined five basis points to 1.78%, and the 10-yr yield declined two basis points to 2.04%. The U.S. Dollar Index lost 0.5% to 96.69.
Overall, the gains were modest, but the S&P 500 consumer staples (+0.8%), financials (+0.8%), information technology (+0.8%), and utilities (+0.8%) sectors did gain 0.8% apiece. The communication services sector (-0.9%) was a drag on the market, as shares of Netflix (NFLX 325.21, -37.23) fell 10.3% after disappointing investors with a miss on net subscriber additions.
Notable standouts on Thursday included Union Pacific (UNP 174.25, +9.70, +5.9%) and Taiwan Semi (TSM 43.19, +1.56, +3.8%) after both provided upbeat earnings results and commentary, helping fuel the gains in the Dow Jones Transportation Average (+1.3%) and Philadelphia Semiconductor Index (+1.5%). The transportation average, however, only recouped some of yesterday's 3.6% decline.
In other earnings news, Philip Morris International (PM 87.71, +6.66, +8.2%), IBM (IBM 149.63, +6.56, +4.6%), Morgan Stanley (MS 44.43, +0.66, +1.5%), and Honeywell (HON 173.88, +5.26, +3.1%) climbed on better-than-expected results.
Separately, oil prices fell for the sixth straight session on Thursday. WTI crude settled 2.8% lower at $55.19/bbl but finished on a high note after President Trump said the U.S. Navy defensively shot down an Iranian drone near the Strait of Hormuz.
Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report, the Philadelphia Fed Index for July, and the Conference Board's Leading Economic Index for June:
- Initial claims for the week ending July 13 increased by 8,000, yet they remain at a very low level of 216,000 (Briefing.com consensus 215,000). Continuing claims for the week ending July 6 dropped by 42,000 to 1.686 million.
- The key takeaway from the report is that it covers the period in which the survey for the July employment report is conducted. The low level of initial claims during the survey week will underpin economists' expectations for another solid increase in nonfarm payrolls.
- The Conference Board's Leading Economic Index declined 0.3% in June (Briefing.com consensus 0.0%) following an unchanged reading for May. The 0.3% decline is the first decline since December 2018 and the largest decline since January 2016.
- The key takeaway from the report is that it suggests growth is apt to remain slow in the second half of the year, according to the Conference Board.
- The Philadelphia Fed Index sprung back to life with a 21.8 reading for July (Briefing.com consensus 5.0) that was well ahead of the 0.3 reading for June. The dividing line between expansion and contraction is 0.0.
Looking ahead, investors will receive the preliminary University of Michigan Index of Consumer Sentiment for July on Friday.
- Nasdaq Composite +23.7% YTD
- S&P 500 +19.5% YTD
- Dow Jones Industrial Average +16.7% YTD
- Russell 2000 +15.4% YTD
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