The S&P 500 experienced its first record close since April amid expectations that the Fed will issue an interest rate cut in July and despite a decrease in bond yields globally.
After a fourth straight day of gains for the S&P 500, the yield for the 10-year U.S. Treasury note slipped below 2%. Yields in Germany and France continue to be at near all-time lows. Lower yields mean higher bond prices.
Lowering yields are a reflection of the tensions between the U.S. and different trade partners. Such anxieties have driven central banks to loosen their monetary policy. Lowering interest rates are seen as a move that could maintain the decade-long economic expansion and avoid a recession.
“The potential rate cuts may be more about fending off danger than reacting to danger. The market is looking at what the Fed is doing and thinking that if the Fed is on our side, then this economic expansion can continue, ,” said Michael Antonelli, market strategist at investment bank Robert W. Baird & Co.
The recent surge in stocks can also be attributed to an upcoming meeting with President Trump and Chinese President Xi Jinping at the Group of 20 summit in Japan next week. Investors hope that next week’s meeting will ease trade tensions between the U.S. and China.
“The market’s reaction after the Fed meeting is kind of crazy. I would have thought things would have quieted down and investors would [have sold shares] after the recent run-up. But investors are now really banking on the G-20 summit,” said Jonathan Corpina, senior managing partner at broker-dealer Meridian Equity Partners.
The jump in stocks signals that there is hope for both the upcoming G-20 summit and an interest rate cut in July.