U.S. markets and stock exchange traded funds rebounded Tuesday after Federal Reserve Chair Jerome Powell said the central bank would respond “as appropriate” to trade war risks, fueling speculation that interest rate cuts were back on the table.
On Tuesday, the Invesco QQQ Trust (NASDAQ: QQQ) increased 2.8%, SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was up 2.1% and SPDR S&P 500 ETF (NYSEArca: SPY) rose 2.2%. The three widely observed U.S. market ETFs also broke back above their long-term trend line at the 200-day simple moving average.
Powell said the Fed was “closely monitoring the implications” of the ongoing trade dispute that has disrupted global markets and stated that it posed risks to growth, fueling speculation that the central bank may intervene with a looser monetary policy to bolster the economy.
“When the market’s been down as much as it has been, all you need is a little bit of a spark,” Paul Nolte, portfolio manager at Kingsview Asset Management, told Reuters. “There is some sense from what we heard from Powell and Bullard that the Fed is thinking about making monetary policy a little easier by cutting rates.”
“The Fed instead of a long pause is now looking and sounding like a slow-motion movie that everyone knows is going to manifest in a cut,” Michael Kelly, global head of multiasset at PineBridge Investments, told the Wall Street Journal. “A month ago, it didn’t look like they were even beginning to think in that direction.”
Additionally, Nolte believed investors were gaining confidence after Mexican President Andres Manuel Lopez Obrador told reporters that he was optimistic a deal could be reached despite President Donald Trump’s insistence on going ahead with new tariffs on all Mexican goods.
Another report that Republican lawmakers were thinking about issuing a vote to block President Trump’s planned new tariffs on Mexico also helped mitigate the previous risk-off sentiment.
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