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U.S. Stocks Move Higher Amid Optimism About Rate Cut

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With traders looking ahead to this week's Federal Reserve meeting, stocks have moved mostly higher over the course of morning trading on Monday. The major averages are adding to the gains posted last week, with the tech-heavy Nasdaq showing a notable advance.

In recent trading, the major averages have reached new highs for the session. The Dow is up 56.46 points or 0.2 percent at 26,146.07, the Nasdaq is up 61.55 points or 0.8 percent at 7,858.21 and the S&P 500 is up 8.22 points or 0.3 percent at 2,895.20.

The strength on Wall Street seems to reflect optimism the Fed will signal a near-term interest rate cut when announcing its monetary policy decision on Wednesday.

Most economists expect the Fed to leave interest rates unchanged but make changes to its accompanying statement pointing to an openness to cutting rates in the near future.

CME Group's FedWatch tool currently indicates just a 19.2 percent chance the Fed will cut rates this week but a 70.1 percent chance for a rate cut next month.

Recent indications the U.S.-China trade dispute is contributing to a slowdown in U.S. economic growth has led to speculation the Fed may cut rates, with Fed Chairman Jerome Powell pledging to act "as appropriate" to sustain the expansion.

Disappointing economic data seems to have reinforced the optimism about a potential rate cut, as the New York Fed released a report before the start of trading showing a sharp downward turn in regional manufacturing activity in June.

The New York Fed said its general business conditions index plunged to a negative 8.6 in June from a positive 17.8 in May, with a negative reading indicating a contraction in manufacturing activity. Economists had expected the index to drop to a positive 10.0.

With the much record-setting monthly decrease, the general business conditions index recorded its first negative reading in over two years.

A separate report from the National Association of Home Builders showed an unexpected pullback in homebuilder confidence in the month of June.

The report said the NAHB/Wells Fargo Housing Market Index dropped to 64 in June after jumping to 66 in May. The decrease surprised economists, who had expected the index to inch up to 67.

"While demand for single-family homes remains sound, builders continue to report rising development and construction costs, with some additional concerns over trade issues," said NAHB Chairman Greg Ugalde.

Most of the major sectors are showing only modest moves on the day, although substantial strength is visible among biotechnology stocks. Reflecting the strength in the sector, the NYSE Arca Biotechnology Index has surged up by 2.4 percent to its best intraday level in over a month.

Within the biotech sector, shares of Array BioPharma (ARRY) are soaring by 56.7 percent after the biopharmaceutical company agreed to be acquired by drug giant Pfizer (PFE) in a deal valued at $11.4 billion.

Oil service stocks are also seeing notable strength, with C&J Energy (CJ) leading the sector higher after announcing a merger with rival Keane Group (FRAC).

In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance during trading on Monday. Japan's Nikkei 225 Index closed just above the unchanged line, while Australia's S&P/ASX 200 Index fell by 0.4 percent.

The major European markets have also turned mixed on the day. While the German DAX Index is just below the unchanged line, the U.K'.s FTSE 100 Index is up by 0.1 percent and the French CAC 40 Index is up by 0.5 percent.

In the bond market, treasuries are showing a lack of direction ahead of the Fed announcement later this week. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by less than a basis point at 2.099 percent.

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