US stock exchanges gain after Fed hints at rate cut

  • Dow Jones, S&P 500, Nasdaq all note gains
  • Tech shares recover from Monday’s sell-offs
  • Uncertainty remains over tariffs on Mexican imports

After US Federal Reserve Chairman Jerome Powell indicated that the country’s central bank was considering the possibility of reducing interest rates yesterday, all of the main stock exchanges started rising. 

Referring to the uncertainty surrounding the current trade negotiations, Powell said: “We do not know how or when these issues will be resolved.” 

He added that with a robust labor market and inflation close to their 2% target, they were closely watching the implications of the latest developments for the United States economy and will take any steps necessary to “sustain the expansion.”

The Dow Jones Industrial Average and the S&P 500 gained 2%. The Nasdaq Composite Index did even better, with a gain of 2.65%. In all three cases, these were the largest single-day gains since the beginning of the year. The S&P 500 is still 5% lower than the recent high it reached on May 1, however.

Technology shares, including Alphabet, Facebook and Apple, recovered strongly yesterday after Monday’s bruising sell-off. Tesla stood out from the crowd with a gain of 8%.

President Donald Trump announced last week that the US will charge a 5% tariff on all products imported from Mexico starting June 10. This will be increased every month until it reaches 25% in October unless Mexico meets the White House’s list of demands.

Wall Street economists and strategists predict that if Trump goes ahead with the tariffs, it will hurt US economic growth, cause inflation to soar, and severely harm the motoring industry, which heavily depends on factories in Mexico. They believe the burden will eventually be carried by American consumers.

Yesterday, Bank of America Merrill Lynch reduced its global growth outlook for next year and said: “The latest escalation of the trade war has prompted us to change our baseline view.”