Dow Lags Broader U.S. Stock Market Ahead of Fed Testimony
The Dow and broader U.S. stock market diverged on Tuesday, as demand for equities waned ahead of key congressional testimony from Federal Reserve Chairman Jerome Powell. Markets are certain the Fed will lower interest rates later this month, but will be looking for confirmation of those plans when Powell speaks Wednesday and Thursday.
Dow Lags Behind S&P 500
The Dow Jones Industrial Average diverged from the broader market on Tuesday, as shares of 3M Co (NYSE: MMM) and Verizon Communications Inc. (NYSE: VZ) weighed on the benchmark. The Dow 30 index settled down 22.65 points, or 0.1%, at 26,783.49, its third straight drop.
The broad S&P 500 Index of large-cap stocks held within a narrow range for most of the day and eventually settled up 0.1% at 2,979.63. Seven of 11 primary sectors reported gains, though big losses in materials weighed on the index.
A strong performance in the technology sector pushed the Nasdaq Composite Index higher. The tech-laden average advanced 0.5% to finish at 8,141.73.
Powell in Focus
Traders have lowered their exposure to stocks in anticipation of Jerome Powell’s two-day testimony before Congress. On Wednesday, the Fed boss will testify before the House Financial Services Committee before making his way to a hearing before the Senate Banking Committee on Thursday.
According to CNBC‘s Jim Cramer, Powell will likely be asked whether the central bank will lower interest rates in line with President Trump’s direction. In other words, Powell will be forced to reiterate the Fed’s independence in the face of political pressures.
The likelihood of a July rate cut is 100%, according to CME Group’s Fed Fund futures prices. In fact, traders are pricing in multiple rate cut before the year is over.
Policymakers raised interest rates four times in 2018 amid signs the U.S. economy was improving. The last rate hike occurred in December.
Bitcoin Dominance Grows
Expectations around monetary policy had no impact on bitcoin Tuesday, as the largest cryptocurrency continues to maintain unique price independence relative to broader macro trends. Bitcoin’s price came within striking distance of $12,900, its highest in nearly two weeks.
The price was last seen trading north of $12,600, having gained 2.5%.
Bitcoin looks poised to break out of the $13,000 price ceiling, setting the stage for new yearly highs. Since hitting peak levels last month, the BTC/USD exchange rate has been making lower highs, a sign that the market was heading for an imminent reversal. A deeper correction has yet to materialize as the bulls found strong support at $11,000.
Bitcoin’s dominance rate hit 64.3% Tuesday afternoon, its highest in 27 months. The largest cryptocurrency has a market capitalization of $224.1 billion compared with $349 billion for the market as a whole.
Disclaimer: The author owns Bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.
Featured image courtesy of Shutterstock. Charts via Stockcharts.com and TradingView.