Stock rise after dovish testimony by Fed Chairman Powell

U.S. stocks rose at the start of trade Wednesday, shaking of pre-market losses, after the release of planned testimony by Federal Reserve Chairman Jerome Powell before lawmakers Wednesday morning, which was perceived as indicating a likely rate cut later this month.

How are the major benchmarks faring?

The Dow Jones Industrial Average DJIA, +0.47% rose 142 points, or 0.5%, at 26,925, while the S&P 500 index SPX, +0.54%  advanced 16 points, or 0.6%, to 2,996. The Nasdaq Composite index COMP, +0.74%   added 68 points, or 0.9%, to 8,210.

Equities ended mostly higher on Tuesday, with the S&P 500  rising 3.68 points, or 0.1%, to end at 2,979.63, while the Nasdaq Composite rose 43.35 points, or 0.5%, to 8,141.73.

The Dow bucked the trend, however, slipping 22.65 points, or 0.1%, to finish at 26,783.49. Major indexes remain less than 1% away from all-time closing highs set last Wednesday.

What’s driving the market?

Investor sentiment was buoyed by the publication of Powell’s planned remarks before the House Financial Services Committed later Wednesday, which had the Fed Chairman emphasizing rising risks to the U.S. economy as well as falling price inflation, which remains below the central bank’s target of 2%.

Powell noted that while the U.S. jobs market remains robust and consumer spending appears set to rebound, business investment has slowed considerably, along with housing investment and manufacturing output.

“Our baseline outlook is for economic growth to remain solid, labor markets to stay strong, and inflation to move back up over time to the Committee’s 2 percent objective,” Powell said. “However, uncertainties about the outlook have increased in recent months. In particular, economic momentum appears to have slowed in some major foreign economies, and that weakness could affect the U.S. economy.”

Aberdeen Standard Investments senior global economist, James McCann, wrote in an email that “A rate cut in July is now all but certain. The strength of last week’s jobs number did lead some to think that the Fed may pause for thought. It’s clear from [Powell’s testimony] that they won’t.”

“There’s an element here of the Fed wanting to take preemptive action,” he added. “From an inflation perspective, the picture certainly seems sour enough to warrant a reaction. But from a growth perspective, there’s nothing in the data that suggests a rate cut is strictly necessary.”

Powell is slated to deliver the testimony before taking questions from members House Financial Services Committee at 10 a.m. Eastern Time.

Investors are also expected to keep an eye on renewed U.S.-China trade talks, though there remains little sign of significant movement, analysts said.

China’s Commerce Ministry said the country’s top trade negotiator, Vice Premier Liu He, conducted a phone call with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, according to Reuters.

Aside from Powell’s testimony, the economic calendar also features the release of minutes of the Fed’s last policy meeting at 2 p.m. Eastern Time. Ahead of that, data on May wholesale inventories are set for release at 10 a.m. and St. Louis Fed President James Bullard is due to deliver remarks at 1:50 p.m.

Which stocks are in focus?

Shares of MSC Industrial Direct Co. MSM, -4.83% were down 1.4% after fiscal third-quarter profit and revenue missed expectations and the company provided a downbeat outlook, while boosting its dividend by 19%.

T-Mobile US IncTMUS, +4.07% will replace Red Hat Inc. in the S&P 500, S&P Dow Jones Indices said after the close of trade Tuesday, following the completionof IBM Corp.’s IBM, +1.43% acquisition of Red Hat. T-Mobile shares rose 3.9% Wednesday.

Levi Strauss & CoLEVI, -11.67%   released reported second-quarter earnings Tuesday evening, reporting declining earnings that fell lower than analyst expectations. Shares fell 9.6% Wednesday morning.

U.S.-traded shares of Nio IncNIO, +4.07%   rallied 7.1% Wednesday, setting the China-based, electric-car maker’s stock for its best six-day gain since going public last September.

Shares of Tesla IncTSLA, +1.76%   rose 1.6% Wednesday after a report that the company is planning a production capacity increase at its Fremont, California factory.

How are other markets trading?

The yield on the 10-year U.S. Treasury TMUBMUSD10Y, -0.67%   was roughly flat at 2.054%.

Stocks in Asia closed mixed on Wednesday, with Japan’s Nikkei 225 NIK, -0.15%losing 0.2%, Hong Kong’s Hang Seng Index 


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