S&P 500, Dow post new record closing highs amid rate cut expectations

Stocks jumped on Thursday, adding to gains after Federal Reserve Chair Jerome Powell amplified market expectations for a near-term cut to benchmark interest rates.

The S&P 500 (^GSPC) rose 0.23%, or 6.84 points, at the end of regular trading, closing at a new record high of 2,999.91.

The Dow (^DJI) increased 0.85%, or 227.88 points, to close above 27,000 for the first time ever. The Nasdaq (^IXIC) edged down 0.08% or 6.49 points.

Powell delivered his semi-annual Monetary Policy Report before the Senate Banking Committee on Thursday in a second and final day of congressional testimony. Thursday’s question-and-answer session with senators touched on a breadth of topics, including concerns over trade disputes, effects of immigration on the economy, and risks associated with Facebook’s cryptocurrency project Calibra.

In prepared remarks delivered to both chambers of Congress, the central bank leader suggested that the Fed would be willing to cut interest rates at the end of the month to help boost the U.S. economy, amid perceived “uncertainties” around trade tensions and the strength of the global economy.

“The worries that have been on the market’s mind – whether that is around trade policy and its impact on the global trading environment, on global [capital expenditure], worries about the Fed consistently undershooting their inflation target, labor picture – all these concerns that had been on the market’s mind, it seems like the Fed has been now concerned about those as well,” Matt Forester, chief investment officer of BNY Mellon’s Lockwood Advisors, told Yahoo Finance.

Market participants took Powell’s comments to be unmistakably dovish, and adjusted expectations for lower interest rates according. Each of the three major domestic stock indices rose to new record intraday highs on Wednesday, and the S&P 500 and Dow closed at new records on Thursday. Short-term interest rates stabilized after dropping on Wednesday.

Several Wall Street firms adjusted their expectations for the outcome of the Fed’s July meeting amid Powell’s testimony. As of Wednesday, Goldman Sachs economists placed their odds for a 25 basis point cut at 75%, a 50 basis point cut at 15%, and unchanged policy at 10%. Morgan Stanley and UBS economists each said their base case calls were for the Fed to cut interest rates by a more aggressive 50 basis points.

Fed fund futures priced in a 79.6% probability for a 25 basis point cut as of Thursday afternoon, along with a 20.4% probability of a 50 basis point ease.

ECONOMY

Core consumer prices edged up more-than-expected in June, according to a release Thursday from the Bureau of Labor Statistics. The so-called core consumer price index (CPI), which excludes volatile food and energy prices and is seen as a better gauge of underlying price trends, rose 2.1% year-over-year in June. This was above the 2.0% increase expected by consensus analysts and seen in May.

Month-over-month, core CPI rose 0.3% in June, faster than the 0.2% increase expected. This marked the largest increase in core CPI in over a year.

WASHINGTON, DC – JULY 10: Federal Reserve Chairman Jerome Powell testifies during a House Financial Services Committee hearing on Capitol Hill on July 10, 2019 in Washington, DC. (Photo by Zach Gibson/Getty Images)

“It’s a little higher than we thought but it seems like it’s going to take a lot more than a monthly data point to push Powell away from his dovish stance,” Mike Loewengart, vice president of investment strategy for E-Trade Financial Corporation, said in an email. “The Fed has pretty much made it clear that the negatives of a cooling economy and ongoing trade tensions outweigh the positives of a Goldilocks inflation number and last week’s solid jobs report.”

Inclusive of all categories, headline CPI rose a stronger-than-expected 0.1% in June, matching May’s reading. Overall CPI rose 1.6% over last year, matching expectations.

Meanwhile, initial unemployment claims fell more-than-expected for the week ending July 6, the Department of Labor reported Thursday. Initial jobless claims fell by 209,000 for the period, a decrease of 13,000 from the upwardly revised level from the previous week. Consensus economists had expected new unemployment claims to match the previous week’s level, according to Bloomberg data.

Continuing jobless claims, however, jumped for the week ending June 29 to 1.723 million. This was above the 1.683 million expected, and the previous week’s upwardly revised 1.696 million continuing unemployment claims.

Emily McCormick is a reporter for Yahoo Finance. Follow her on Twitter: @emily_mcck

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