It was all about the Fed this week, as stock market averages posted new (or close to new) highs. The S&P 500 Index rose 2.2% to 2,950.46 setting a new all-time record on Thursday. The Dow, meanwhile, gained 629.52 points, or 2.4% to 26,719.13, and the Nasdaq Composite climbed 3% to 8,031.71 – just 0.4% and 1.6%, respectively, away from notching new highs of their own. With the exception of a slight decline in telecommunication stocks, all sectors were in the green with energy names posting a 5.32% gain on average followed by technology and health care with respective moves of 3.69% and 3.22% to the plus side. Gold prices eclipsed $1,400/oz. a multi-year high and settling the week at $1,396.20/oz. West Texas crude oil climbed $4.92/bbl. to close at $57.43.
The Federal Reserve’s interest-rate policy is evolving. This week it suggested strongly that it could cut rates as early as its next meeting in July as growth has cooled and inflation has fallen below the its 2% target. This is in sharp contrast to possible short-term rate increases this year. An impending rate cut is usually great news for the stock market because lower rates generally mean higher valuations for equities, all else being equal. Hopes for progress with China on the trade front; indications that the European Central Bank will be more accommodative in the near term; and the fairly bright economic picture painted by the Fed are a positive combination for investors.
While equities are back to high ground, so are valuations. The S&P 500 now trades at 17.3 times twelve-month forward earnings forecasts, according to Bloomberg data, not far of its September peak of 17.34, which preceded a huge year-end selloff. Nonetheless, Wall Street’s bullishness appears justified and investors stand to be rewarded in the coming months. I would continue to hold and add to positions that show both global growth prospects and rising dividends.
Today’s Trivia Question: SunTrust and BB&T are in the process of merging the two banking institutions. Upon approval, the new name of the combined holding company will be? Bank of the South, Truist Financial, Sun Banking & Trust or BBTSunTrust.