STOCKS AND BONDS CLOSE HIGHER ON DOVISH RATE CUT -- S&P 500 CLOSES AT NEW RECORD -- FALLING BOND YIELDS BOOST DIVIDEND-PAYING STOCKS AS BANKS PULL BACK -- DROP IN DOLLAR AND LOWER YIELDS BOOST GOLD -- VOLATILITY INDEX DROPS TO THREE-MONTH LOW
FED RATE CUT AND DOVISH MESSAGE BOOST STOCK PRICES...The Fed lowered rates another quarter point today as expected, which was followed by a dovish sounding message from Mr. Powell. That pushed stock prices higher. Chart 1 shows the S&P 500 closing at another record high today. Chart 2 shows the Dow Industrials closing over 27000 and nearing a test of its old highs. Chart 3 shows the Nasdaq Composite right up against its July peak. Bond prices also rose as yields dropped on long and short maturities. That gave a boost to dividend-paying utilities and real estate stocks which led the day's gains. The drop in yields, however, caused some profit-taking in bank stocks. Nine sectors gained ground with bigger gains in cyclicals, technology, and healthcare. Energy was the biggest loser as oil prices dropped. The more dovish tone pushed the dollar lower. And gold higher.
BOND YIELDS DROP AS PRICES REBOUND... Mr. Powell's suggestion that the Fed would be keeping rates lower for longer pushed yields lower along the yield curve. Chart 4 shows the 10-Year Treasury Yield dropping 3 basis points to 1.79%. That also keeps the TNX below its September peak near 1.90%. Chart 5 shows the 7-10 Year Treasury Bond iShares (IEF) bouncing from potential support along its September low. As a result, bond prices rose along with stocks.
DOLLAR DROPS WHILE GOLD REBOUNDS...Chart 6 shows the Invesco US Dollar Index (UUP) falling today. The weaker dollar and lower yields boosted gold. Chart 7 shows the Gold SPDR (GLD) bouncing from chart support along its recent lows.
VIX DROPS TO THREE-MONTH LOW...Chart 8 shows the CBOE Volatility (VIX) Index falling to the lowest level since July. That suggests that options traders are more confident in the market's recent gains.
