S&P 500 hits first intraday record since May as Fed abandons ‘patience’

U.S. stock indexes Thursday extended gains to a fourth straight day, testing fresh records after the Federal Reserve signaled that policy easing may be forthcoming to sustain the economy.

The Dow Jones Industrial Average DJIA, +0.79%rose 232 points, or 0.9%, at 27,735, marking its highest trading level since Oct.3. The S&P 500 index SPX, +0.77% gained 27 points, or 0.9%, at 2,953, trading above its April 30 closing record at 2,945.83 and touching a new intraday peak at 2,956.20, surpassing its May 1 intraday record. Meanwhile, the Nasdaq Composite Index COMP, +0.84% climbed 88 points, or 1.1%, trading about 1% from its May 3 closing high at 8,164.

Fed Chairman Jerome Powell on Wednesday strongly implied that the central bank would cut benchmark interest rates, currently at a range of 2.25%-2.50%, in the coming weeks if the economic outlook buffeted by U.S.-China trade tensions doesn’t show signs of improvement.

“The case for somewhat more accommodative policy has strengthened,” Powell said at a news conference on Wednesday to discuss the rate-setting Federal Open Market Committee’s highly anticipated decision. Policy makers kept rates unchanged as expected but removed the word “patient” from its updated policy statement, suggesting that it is ready to act soon.

Although markets have been widely anticipating that the Fed would respond to growing signs of stress in the economy, the central bank’s posture on looser monetary policy was seen as providing a strong case for the continued rise in stocks despite concerns about lurking economic problems.

The Fed remained mostly optimistic about the outlook, but said inflationary pressures have receded, compelling it to lower its forecast for PCE inflation in 2019 to 1.5% from 1.8%, below its 2% target. At the same time, it left its gross domestic product estimate at 2.1%.

Curiously low inflation has been often cited by FOMC members as one of the key reasons for its doubts about its monetary policy path. The Fed next meets July 30-31, while President Donald Trump is expected to speak to Chinese President Xi Jinping on the sidelines of the coming Group of 20 meeting of well-developed nations in Japan in late June, where a detente on trade policy could be reached.

See: Recap of Fed decision and Powell press conference

Dovish rhetoric from central-bank policy makers across the globe this week has helped to send commodity prices, and particularly gold, rocketing higher, with heightened expectation that interest rates, which can undercut appetite for bullion, will could be lowered.

Bank of Japan Gov. Haruhiko Kuroda and the Bank of England on Thursday, joined the chorus of bankers including Powell and European Central Bank President Mario Draghi, signaling a readiness to increase stimulus should global risks at least partly spurred by trade, worsen.

The BOJ’s Kuroda said “we’ll of course consider expanding stimulus without hesitation,” he told a news conference, according to Reuters.

The Philadelphia Fed manufacturing index in June fell to just 0.3 after registering a four-month high of 16.6 in the prior month. Any reading above zero indicates improving conditions. Economists polled by MarketWatch expected an 8 reading.

Initial jobless claims, a rough way to measure layoffs, fell by 6,000 to 216,000 in the seven days ended June 15, the government said Thursday.

“The indices are set to open higher along with soaring gold and oil prices. Mounting geopolitical tensions continue to ignite a rush to safety while hopes of a rate cut dominate the equity markets,” Peter Cardillo, chief market economist at Spartan Capital Securities.

“Powell’s press conference [on Wednesday] showed some reluctance, but it seems markets are certain the Fed will cut in July. If data deterioration is worst than expected, calls for a 50-basis cut at the July meeting will grow in the coming weeks,” wrote Edward Moya, senior market analyst at Oanda in a daily research note.

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Before the U.S. markets opened on Thursday, Hong Kong’s Hang Seng Index HSI, +1.23% rose 1.2% and China’s Shanghai Composite Index SHCOMP, +2.38% rallied by 2.4%. Japan’s Nikkei 225 NIK, +0.60% meanwhile, closed up 0.6%, while in Europe, the Stoxx Europe 600 SXXP, +0.45% traded 0.6% higher.

Gold futures GCQ19, +2.85% meanwhile, surged 2.6%, to the highest level since 2013 at $1,384.50 an ounce, while the 10-year Treasury note TMUBMUSD10Y, -1.82% touched a yield below 2%, and the U.S. dollar, as measured by the ICE U.S. Dollar Index DXY, -0.44% fell 0.5% to 96.67.

Crude-oil prices CLU19, +5.31% surged amid geopolitical tensions in the Middle East. Iran says it shot down a U.S. drone in its airspace.

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