Dow jumps 300 points on hopes the Fed will follow through with a second rate cut

Stocks rose on Thursday as investors increased bets on the Federal Reserve cutting rates for a second time later this year.

The Dow Jones Industrial Average jumped 300 points while the S&P 500 traded 1.1% higher. The Nasdaq Composite advanced 1.6%.

Tech shares led the rally as the sector gained 2.2%. Western Digital was the best-performing stock in the sector, jumping 6.8%. Other tech-related stocks like Facebook, Amazon, Apple, Netflix and Alphabet also traded higher.

Hopes for another rate cut increased after IHS Markit’s U.S. manufacturing PMI dropped in July to its lowest level since September 2009. IHS said employment in the sector fell to its lowest level since 2013. Muted client demand and a slower increase in production weighed down the manufacturing space.

The Institute for Supply Management’s reading on the manufacturing sector fell to 51.2 in July, its lowest level since August 2016. Economists polled by Reuters expected a print of 52.

The Fed cut interest rates by 25 basis points on Wednesday — its first cut in more than a decade — citing “global developments” along with “muted inflation” as reasons for easing monetary conditions.

But Chairman Jerome Powell told reporters in a news conference following the Federal Open Market Committee’s rate decision that the central bank’s rate cut was a “midcycle adjustment,” hinting that further rate cuts later this year were not a sure thing.

That comment led to a 333-point drop on the Dow, its biggest one-day drop since May 31. The S&P 500 and Nasdaq dropped 1.1% and 1.2%, respectively, to end July.

“Yesterday was the perfect example of expectations being misaligned with reality,” said Art Hogan, chief market strategist at National Securities. “The Fed did exactly what it should have done. An insurance cut is exactly that.”

“The Fed delivered a message saying the market may have been ahead of itself pricing in so many rate cuts,” he said.

President Donald Trump went after the Fed once again following Powell’s comments, saying the chairman “let us down ” by not clearly signaling more rate cuts.

The Fed operates independently of the White House. Powell said Wednesday the central bank would never move rates because of political factors or to prove its independence.

Thursday marked the first trading day of August, a month that has not been kind to Wall Street. Since 1950, August has been the second-worst month for the S&P 500, according to the Stock Traders’ Almanac. Over that time, the S&P 500 has averaged a loss of 0.1% in August.

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Ed Moya

Ed Moya

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya