Sun, Jul 21, 2019 - Page 14 News List

Rate cut expectations, Iran tensions drag on S&P 500

USELESS?An investment strategist said a 0.25 percentage point rate cut would be ‘25 wasted’ and that the Federal Reserve should ‘shock the market’ with a bigger cut


US stocks on Friday pulled further back from their records to cap the weakest week for the S&P 500 since May.

Indices sloshed between small gains and losses for much of the day before turning lower in the afternoon after Iran said that it had seized a British oil tanker, the latest escalation of tensions between Tehran and the West.

Reined-in expectations for how deeply the US Federal Reserve will cut interest rates at its next meeting also weighed on stocks.

The S&P 500 on Friday fell 18.50 points, or 0.6 percent, to 2,976.61. After setting its record high on Monday, the index see-sawed mostly lower and lost 1.2 percent from a close of 3,013.77 on July 12. It was just the second down week for the index in the past seven.

The Dow Jones Industrial Average on Friday fell 68.77, or 0.3 percent, to 27,154.20, falling 0.7 percent from 27,332.03 a week earlier.

The NASDAQ Composite on Friday lost 60.75, or 0.7 percent, to 8,146.49, dropping 1.2 percent from a close of 8,244.14 on July 12.

The Russell 2000 index of smaller stocks on Friday fell 7.73 points, or 0.5 percent, to 1,547.90, a decrease of 1.4 percent from 1,570.00 a week earlier.

Momentum for stocks has slowed since early last month, when they began soaring on expectations that the Federal Reserve would cut interest rates for the first time in a decade to ensure the US economy does not succumb to weaknesses abroad.

The Fed’s next meeting is scheduled for the end of this month.

Late on Thursday, US Treasury yields sank after comments by Fed officials raised expectations that it might cut rates by half a percentage point, rather than the typical quarter point.

However, yields climbed on Friday as the market grew more convinced that the Fed would cut just 0.25 percentage points on July 31.

“It could be 25 wasted,” Northwestern Mutual Wealth Management Co chief investment strategist Brent Schutte said, adding that a half-point cut would be more effective.

“I think it’s more important to shock the market a bit and convince the market they’re serious about pushing inflation above 2 percent,” he said.

The yield on the 10-year Treasury rose to 2.05 percent, from 2.04 percent late on Thursday. The two-year yield, which is more influenced by expectations of Fed moves on rates, climbed from 1.77 percent to 1.81 percent.

Until the Fed’s meeting, investors are focusing on whether companies can top the meager expectations Wall Street has for the profits they made during the spring.

Microsoft Corp jumped in morning trading after reporting stronger earnings for April through June than analysts expected, although it faded as the afternoon progressed and ended the day with just a 0.1 percent gain.

Several banks climbed after reporting stronger-than-expected earnings, but financial stocks in the S&P 500 were down overall. That was partly because of a 2.8 percent drop for American Express Co, which reported stronger earnings for the latest quarter than analysts forecast, but did not raise its forecast for full-year earnings.

“The biggest overall trend is if you beat, you may be mildly rewarded, and if you miss, you are going to get pounded,” TD Ameritrade Holding Corp chief market strategist J.J. Kinahan said.

Energy stocks had the biggest gains in the S&P 500 after the price of oil climbed on worries about possible supply disruptions.

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