Is the market comeback fundamentally backed?
The first week of June proved beneficial for the US stock markets after Mexico tariffs were called off and prospects of a Fed rate cut increased.
Escalating US-China trade war tensions and President Trump’s announcement of Mexico tariffs dragged down the market in May. The SPDR Dow Jones Industrial Average ETF (DIA) tracks the Dow Industrial Average Index. It fell by 6.6% in May. The Invesco QQQ Trust (QQQ) tracks the NASDAQ Composite Index. It was down 8.2% in May. The SPDR S&P 500 ETF (SPY) tracks the S&P 500 Index, and it was down 6.3% in May.
So what caused this comeback in June?
The sudden rally in the market was driven by Federal Reserve Chair Jerome Powell’s dovish comments last week that “the Fed will act as appropriate to sustain the expansion.” A CNBC article stated that market traders are expecting a 70% chance of an interest rate cut in July and a ~60% chance of three rate cuts in 2019.
President Trump called off Mexico tariffs last week after negotiating terms with the Mexican government, which further drove the positive sentiment in the market.