Market Direction Mid Week: Rate Cuts Again

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Market Direction: BULLISH alert issued 10/24/2019

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Stocks rose Wednesday afternoon, with the S&P 500 setting a new closing record, after the Federal Reserve announced another cut in interest rates, while signaling that the economy appears to be strong enough to not need further cuts in the near future.

Investors were also monitoring a flood of quarterly corporate results that have largely come in better than analysts feared.

What did the major indexes do?

The S&P 500 index SPX, +0.33%  rose 9.88 points, or 0.3%, to close at a record level of 3,046.77.

The Dow Jones Industrial Average DJIA, +0.43%  gained 115.27 points, or 0.4%, to close at 27,186.69, and the Nasdaq Composite index COMP, +0.33%  added 27.12 points, or 0.3% to 8,303.98.

The Dow sits about 0.6% from its record high of 27,359.16 set on July 15, while the Nasdaq remains 0.3% below its record of 8,330.21, set on July 26.

What drove the market?

The Federal Reserve cut its benchmark fed funds rate by 0.25% to between 1.50% and 1.75%, a move that was widely expected by futures markets.

The central bank said in a statement accompanying the decision that the U.S. “labor market remains strong and that economic activity has been rising at a moderate rate,” adding that “sustained expansion of economic activity, strong labor-market conditions, and inflation near the committee’s symmetric 2% objective are the most likely outcomes” in the quarters ahead.

It justified the easier monetary policy by noting that inflation remains below the Fed’s 2% target, “while business investment and exports remain weak.”

The statement may reflect a central bank that will be less willing to cut interest rates in the coming quarters, after it removed the phrase that the Fed “will act as appropriate to sustain the economic expansion” and replaced it with less forceful language suggesting a wait-and-see approach.

“The Fed is done cutting rates for now and, at least so, far investors are OK with it,” Michael Arone, chief investment strategist at State Street Global Advisors, told MarketWatch.

Arone said that the idea that the Fed will pause its rate-cutting cycle was reinforced by comments made by Fed Chairman Jerome Powell in a news conference following the announcement, when he repeatedly said that “monetary policy is in a good place.”

During the press conference, stocks flipped from modest losses to gains, a move Arone chalked up to Powell’s optimism about the health of the U.S. economy. “He seemed to be speaking quite optimistically about the economy and perhaps markets were responding to that,” he said.

Also read: Can the stock market march higher without the promise of more Fed cuts?

Don’t miss: Here’s how the stock market tends to perform after the Fed cuts rates 3 times in a row

Meanwhile U.S. third-quarter corporate earnings reports are also preoccupying investors. Earnings have been “fine,” and trading activity in the past few weeks has been all about re-positioning, said Sahak Manuelian, head of equity trading for Wedbush Securities. As some political headwinds ease up and central banks remain accommodative, traders “are feeling like, I’m too far into staples and defensives, and I need to have some exposure to cyclicals.”

Market breadth has also been improving, Manuelian said, helping to confirm some of the march higher for stock prices. And the better-than-expected third-quarter U.S. gross domestic product report is another sign that consumers aren’t slowing down, Manuelian told MarketWatch.

U.S. gross domestic product, the official scorecard for the economy, grew at an 1.9% annual pace in the third quarter, the Commerce Department said Wednesday, down just a tick from 2% growth in the spring. Confident consumers kept the U.S. economy humming along in the third quarter, spending more than enough to counter a big drop in business investment tied to falling oil prices and the ongoing trade war with China.

See: Confident consumers keep U.S. economy humming along, GDP grows 1.9% in third quarter

Private-sector employers added 125,000 jobs in October, payroll processor ADP said, spot on the consensus forecast.

Markets were also waiting to hear about a rescheduling for the anticipated Asia-Pacific Economic Cooperation meeting, where President Donald Trump intended to meet Chinese president Xi Jinping to continue trade talks. The White House told MarketWatch that the decision will not affect trade negotiations and that “We look forward to finalizing Phase One of the historic trade deal with China within the same time frame.”

Earlier, Reuters reported that the interim trade agreement between the U.S. and China might not be completed in time for signing at the upcoming APEC meeting and that the Trump administration’s demand that Beijing commit to buying more U.S. agricultural products has become a major sticking point in negotiations.

What did other markets do?

U.S. Treasury yields slipped ahead of Fed policy decision. The yield on the 10-year U.S. Treasury fell 3.3 basis points to 1.801%, marking its biggest daily drop since Oct. 3.

Gold for December delivery GCZ19, +0.12%   on Comex rose $6.40, or 0.4%, to trade at $1,496.80 an ounce.

Oil futures extended earlier losses on Wednesday after the Energy Information Administration reported a larger-than-expected weekly U.S. crude-supply increase of almost 6 million barrels, but gasoline inventories declined a bit more than forecast.

West Texas Intermediate crude for December delivery  CLZ19, -0.20%  fell 48 cents, or 0.9%, to settle at $55.06 a barrel on the New York Mercantile Exchange

In Asia, the China CSI 300 000300, -0.49%  lost 19 points, 0.5%, to 3,891.23. The STOXX Europe  SXXP, +0.08%  closed up 0.1% to 398.70.

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The all-time highs since our initial recommendation to go LONG this market. Here is how the markets have performed:

Stock Market Direction Recommendation (10/24/2019)
Dow	up 398.83 points a 1.49% gain	10/30/19
Nasdaq	up 149.76 points a 1.83% gain	10/28/19
S&P 500	up 39.81 points a 1.32% gain	10/30/19

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