- The Dow hit a record high in early trading Friday, one day after the S&P 500 reached a new peak.
- Investors are pinning their hopes on the Fed cutting interest rates for the first time since 2008.
- A planned meeting between President Trump and Chinese leader Xi Jinping later this month is also fueling hopes for a deal on trade.
Stocks extended their rise on Friday, with the Dow joining the S&P 500 in record terrain amid growing investor expectations of a cut in the Federal Reserve's benchmark interest rate.
The Dow rose 131 points, or 0.5%, to 26,884 in morning trade, topping the blue-chip index's previous record close of 26,828 on October 3, 2018, before later retreating beneath that level. The broader S&P 500 reached a new peak on Thursday, with financial markets shrugging off concerns about slowing U.S. economic growth and mounting geopolitical tensions after Iran shot down an American spy drone.
For the year, the Dow and S&P 500 are up 15% and 19%, respectively, while the tech-heavy Nasdaq has jumped 21%.
Several factors have powered stocks' rise of late. Most important, Federal Reserve Chairman Jerome Powell and other central bank officials have affirmed their readiness to cut short-term interest rates to support what they acknowledged this week is slowing economic activity. Lowering borrowing costs for individuals and businesses could also help offset potential headwinds from the U.S.-China trade war, Powell has said.
Nearly half of the Fed's rate-setting panel foresees a need to trim rates sometime this year, the central bank indicated in issuing its latest policy statement on Wednesday. That's music to the ears of equity investors — lower rates often spur demand for riskier assets, including stocks.
Wall Street also hopes that a planned meeting between President Donald Trump and China's Xi Jinping at the G20 summit in Japan later this month will ease hostilities over trade between the world's two largest economies.
That may be wishful thinking. Although experts say the diplomatic overtures could lead the White House to postpone a proposed tariff on $300 billion in Chinese goods, a breakthrough is unlikely.
"While the meeting between Presidents Trump and Xi at the G20 meeting will clearly be an important event for financial markets, it seems unlikely to be decisive, as the odds of a formal detailed agreement at the meeting seem very low but further tariff escalation would probably not be announced right away, either," Goldman Sachs analysts said in a client note.
The investment bank thinks there remains a "good chance" for a U.S.-China trade pact later this year or in early 2020, noting Mr. Trump's interest in clinching a deal before the November election.