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Dow’s Meteoric Rally to Record Highs Now Hinges on the Fed

Last Updated September 23, 2020 12:47 PM
Sam Bourgi
Last Updated September 23, 2020 12:47 PM

By CCN.com: The Dow and broader U.S. stock market extended their rally Wednesday morning following news that the United States and China will resume trade negotiations ahead of a key presidential summit in Japan next week. The Dow’s return to record highs now hinges on the Federal Reserve, which is set to wrap up its June policy meeting in the next few hours.

Dow Extends Rally; S&P 500, Nasdaq Follow

All of Wall Street’s major indexes traded higher after the open, reflecting a fairly upbeat pre-market for Dow futures. The benchmark Dow Jones Industrial Average climbed 48.03 points, or 0.2%, to 26,513.57. The blue-chip index surged 353 points on Tuesday.

Dow Jones
Dow Jones Industrial Average extends 353-point rally early Wednesday. | Source: Yahoo Finance.

The broad S&P 500 Index of large-cap stocks opened 0.1% higher at 2,921.45. Ten of 11 primary sectors reported gains, led by industrials and information technology shares. Four of the 11 sectors gained at least 1%.

The technology-focused Nasdaq Composite Index jumped 0.2% out of the gate to reach 7,970.01.

All Eyes on the Fed

Federal Reserve
The Federal Reserve on Wednesday is expected to lay the foundation for a July interest rate cut. | Source: Shutterstock.

After weeks of speculation, the Federal Reserve on Wednesday is expected to signal one way or another its plans to lower interest rates this year. Although the paradigm shift appears sudden, the Fed’s dovish pivot began all the way back in January when officials realized that higher interest rates were having adverse effects on the stock market.

A prolonged tariff dispute with China has created a sense of urgency on the part of the Fed to act sooner rather than later. Chairman Jerome Powell told a conference in Chicago earlier this month that officials were monitoring the negotiations closely and would respond with appropriate monetary policy should the tariff dispute hurt economic growth.

The Federal Reserve will deliver its latest policy verdict at 2:00 p.m. ET Wednesday with eyes on the Dow in tandem. The June statement will be accompanied by quarterly projections covering GDP, unemployment and inflation.

Markets are pricing a 20.8% chance that the Fed lowers interest rates on Wednesday, according to CME Group ‘s Fed Watch Tool. The likelihood jumps to 83% following the July 30-31 FOMC meeting.