Stocks marched sharply higher on Wall Street in afternoon trading Tuesday after the head of the Federal Reserve signaled that the central bank is prepared to cut interest rates to sustain U.S. economic growth. Fresh optimism about the possibility that the U.S. and Mexico will swiftly reach a trade deal also helped lift the market.
Technology stocks led the broad rally, which sent the Dow Jones Industrial Average more than 450 points higher and had the S&P 500 on track for its best day since early January. The gains also helped the Nasdaq composite recoup the losses it racked up a day earlier, when technology stocks slumped over concerns that several big internet companies could face more scrutiny from antitrust regulators.
Remarks by Mexican Foreign Minister Marcelo Ebrard helped lift investors' mood. Ebrard said that Mexico can likely reach a deal with the U.S. at a meeting Wednesday. That would stave off President Donald Trump's threat to place 5% tariffs on Mexican goods. Trump warned he'd impose the tariffs beginning June 10 as part of a broader immigration dispute.
Automakers rallied as traders bet that the U.S. and Mexico will work out their trade issues. Many automakers import vehicles from Mexico and would be hit particularly hard if the U.S. imposes tariffs. Ford Motor climbed 3%, General Motors gained 5.7% and Fiat Chrysler added 3.9%.
The threat of a trade battle with Mexico has worried investors already nervous about the escalating trade war between the U.S. and China. The stock market suffered its first monthly loss of the year in May as investors fled to safer holdings such as bonds.
Federal Reserve Chairman Jerome Powell said the Fed was "closely monitoring" trade developments and would "act as appropriate" to sustain the U.S. economic expansion, a signal the Fed would be prepared to cut rates if needed. Some investors are even beginning to bet that the Fed's next move will be a rate cut later this year.
"The concern in the market is that economic data is going to worsen," said Jeff Zipper, managing director at U.S. Bank Wealth Management. "If economic data worsens, then growth slows down. So obviously a rate cut would provide liquidity into the economy and the marketplace, and that's what investors are looking at right now."
Chipmakers were among the biggest gainers in afternoon trading. Nvidia jumped 6.4% and Advanced Micro Devices climbed 6.4%. Other technology companies rallied. Microsoft rose 2.3% and Apple added 3.6%.
Facebook rose 1.9% after a shaky start. A top European Union legal adviser said that social media networks could be ordered to take down any text, photo or other media ruled to be defamatory by a court, anywhere in the world.
Banks also posted gains as lower bond prices pushed yields on the 10-year Treasury higher. Banks benefit from higher yields because they can charge more interest on loans. Bank of America rose 4.5% and Citigroup gained 4.7%.
Utilities lagged the market in another sign that investors were shifting funds away from safe-play holdings and into riskier, but potentially more profitable investments.
KEEPING SCORE: The S&P 500 index was up 1.9% as of 3:32 p.m. Eastern time. The Dow vaulted 454 points, or 1.8%, to 25,274. The technology-heavy Nasdaq composite rose 2.3%.
Major stock indexes in Europe also rose broadly.
FED FEEDS HOPES: "We do not know how or when these issues will be resolved," Powell said in his remarks. "We are closely monitoring the implications of these developments for the U.S. economic outlook and, as always, we will act as appropriate to sustain the expansion."
The market's robust early gains this year were partly fueled by the Fed's move to take a more patient approach to its rates policy after steadily raising rates for two years. Investors have been hoping it will go further and cut interest rates to give economic growth another push.
The current expansion will next month become the longest period of uninterrupted growth in U.S. history, surpassing the 10-year expansion of the 1990s.
BOXED IN: Online storage provider Box fell 5.6% after giving investors a weak revenue forecast for the year. The company cited a shift to longer sales cycles. The company also said it is "no longer prudent" to give a timeframe for reaching a $1 billion revenue milestone.
LINGERING LUSTER: Luxury jeweler Tiffany rose 3.9% after beating Wall Street's profit forecasts for the first quarter. Investors focused on the solid profit figures amid a very mixed report.
A key figure measuring sales at established stores fell short of forecasts and Tiffany warned that higher costs from tariffs could cut into its profit.
TRANSFORMING DRUGSTORES: CVS Health rose 2.8% after it announced plans to add more health services, including medical equipment and dietitians to more than 1,500 stores over the next few years. The transformation will even include space for the occasional yoga class.
The transformation is part of a broader move within drugstores to expand services as they compete more intensely for customers' health care needs. Rival Walgreens Boots Alliance is already experimenting with adding primary care offices to its stores. Its stock gained 3.1%.