US markets end the week at record highs on hint of rate cut

US Central bank chairman Jerome Powell’s testimony signaled interest-rate could soon be cut.

NYSE ticker/from the floor July 12, 2019
US markets reacted to Federal Reserve chairman Jerome Powell's two-day testimony by ending the week at record highs in anticipation of the central bank delivering an interest rate cut this month [Lucas Jackson/Reuters]

All three major indexes in the United States posted record closing highs on Friday as firm expectations for an interest-rate cut from the US Federal Reserve continued to propel shares while investors awaited next week’s kickoff of the corporate earnings season.

The S&P 500 closed above the 3,000 level for the first time, with the industrial, consumer discretionary and materials sectors each posting gains of at least one percent.

In his two-day testimony before Congress, Chairman of the Federal Board of Reserve Jerome Powell said the US economy was still under threat from disappointing factory activity, tame inflation and a simmering trade war and that the central bank stood ready to “act as appropriate”.

“Clearly, his messaging was far more directive in terms of what the Fed is going to do at the next meeting than just a vague promise to keep the economic expansion intact,” said Quincy Krosby, chief market strategist at Prudential Financial in Newark, New Jersey. “That has brought the market to new highs.”

With expectations for rate cuts in place, the focus is turning to the corporate earnings season as large US banks, including Citigroup Inc and JPMorgan Chase & Co, are set to report next week.

Analysts estimate that S&P 500 companies will report a 0.4 percent dip in second-quarter earnings, according to Refinitiv IBES data.

The Dow Jones Industrial Average rose 243.95 points, or 0.9 percent, to 27,332.03, the S&P 500 gained 13.86 points, or 0.46 percent, to 3,013.77 and the Nasdaq Composite added 48.10 points, or 0.59 percent, to 8,244.14.

For the week, the S&P 500 rose 0.8 percent, the Dow added 1.5 percent and the Nasdaq gained one percent.

Data for US producer prices in June showed the smallest annual increase in producer inflation in nearly 2-1/2 years and a slowdown in underlying producer prices, which suggested that overall inflation could remain moderate for a while.

Ford Motor Co shares gained 2.65 percent after the automaker and Volkswagen AG said they would join forces to develop autonomous and electric cars.

Johnson & Johnson shares slid 4.1 percent after Bloomberg reported that the US Justice Department is pursuing a criminal probe into whether the healthcare conglomerate lied about potential cancer risks of its talcum powder.

Johnson & Johnson’s slide dragged down the S&P 500 healthcare index, whose 1.2 percent decline was the biggest among S&P 500 sectors.

Illumina Inc shares tumbled 16.1 percent, the most among S&P 500 companies, after the gene-sequencing company’s preliminary second-quarter revenue came in below analyst estimates.

Advancing issues outnumbered declining ones on the NYSE by a 2.02-to-1 ratio; on Nasdaq, a 1.43-to-1 ratio favoured advancers.

The S&P 500 posted 50 new 52-week highs and two new lows; the Nasdaq Composite recorded 83 new highs and 55 new lows.

Volume on US exchanges was 5.68 billion shares, compared with the 6.71 billion average for the full session over the last 20 trading days.