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Lower interest rates hopes pushed the S&P 500 to record high

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Wall Street indexes rose on Wednesday to their historical highs after the latest minutes of the Federal Reserve meeting and the testimony of the Central Bank Governor Jerome Powell before the Congress.

The S&P 500 briefly crossed the threshold of 3,000 points at the beginning of the session less than five years after crossing 2,000 points. The broader index ended the session with a gain of 13.36 points, or 0.45%, to 2,992.99 points. The technology Nasdaq and the blue-chip Dow Jones Industrial Average also reached record highs, rising by 0.75% and 0.29% respectively.

The CBOE Volatility Index, which measures the implied volatility of S&P 500 options, was down 7.52% to 13.03.

SP500 index

Jerome Powell told the House Committee on Financial Services at the House of Representatives that business investment in the US has slowed down noticeably due to uncertainty over economic prospects.

The Fed Governor pointed out that the central bank would act appropriately to sustain expansion, as various risks continue to weigh on the economic outlook. Among the risks are the trade strain, low inflation, and worries about the world economy. Jerome Powell, however, stressed that the US economy remains strong.

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

The minutes of the last Fed meeting also signaled for a reduction in interest rates in the short term. An interesting fact is that the statement misses the word “patience”.

Traders have even determined the likelihood of the Fed’s interest rate cut in July at 100%. The stronger-than-expected data on the US labor market in June quenched expectations for lower interest rates.

The lower interest rate makes it cheaper for companies to borrow money and are thus supportive of the stock market.

The yields on US government debt, which is in part driven by interest rate expectations, dropped initially on Powell’s remarks but bounced back. The 10-year US Treasury yield is little changed at 2.0630%.

Corporate stocks performance

The shares of Amazon rose by more than 1.5% to 2,000 USD.

The stocks of Tesla rose by more than 3% amid the information that the company had told its employees to prepare to increase production.

Shares of MSC Industrial Direct closed 3.76% lower 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 will replace Red Hat in the S&P 500, following the completion of IBM’s acquisition of Red Hat. T-Mobile shares rose 4.6% Wednesday.

Levi Strauss released second-quarter earnings Tuesday evening, reporting declining earnings that fell lower than analyst expectations. Shares fell 12% on Wednesday morning.

The shares of the financial consulting firm GreenPro Capital Corp fell to all-time lows, declining by 19.44%.

The top performers on the S&P 500 were Chesapeake Energy Corporation (+5.52%), Western Digital Corporation (+4.97%) and Align Technology Inc (+4.08%), while on the flipside were Hanesbrands Inc (-4.95%), Unum Group (-4.89%) and WW Grainger Inc (-3.03%).

Corporate earnings reports

MSC Industrial Direct reported a fiscal third-quarter profit and revenue that missed expectations and provided a downbeat outlook while increasing its dividend by 19%. The distributor of metalworking and maintenance and repair products said net income for the quarter to June 1 rose to 79.6 million USD, or 1.44 USD per share, from 79.1 million USD, or 1.39 USD per share, in the year-ago period. The consensus of analysts for earnings per share was 1.49 USD. Net sales rose by 4.6% to 866.5 million USD but were below the consensus estimates of 881.6 million USD. For the fourth quarter, the company expects EPS of 1.21 USD to 1.27 USD and sales of 835 million USD to 851 million USD. Separately, MSC raised its quarterly dividend to 0.75 USD per share from 0.63 USD per share, with the new dividend payable August 6 to shareholders of record on July 23.

PriceSmart came out with quarterly earnings of 0.55 USD per share, beating the analysts’ estimates of 0.42 USD per share. This compares to earnings of 0.61 USD per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of 30.95%. A quarter ago, it was expected that this warehouse club operator would post earnings of 0.56 USD per share when it actually produced earnings of 0.88 USD, delivering a surprise of 57.14%.