The Federal Reserve’s decision to cut interest rates by half a percentage point on Wednesday sent stocks soaring to record highs on Thursday. The Dow Jones Industrial Average jumped 522.09 points, or 1.26%, to close at 42,025.19, marking its first close above the 42,000 threshold. The S&P 500 rose 1.7% to end at 5,713.64, surpassing 5,700 for the first time, while the Nasdaq Composite surged 2.51% to finish at 18,013.98.
Investors celebrated the Fed’s move, which was seen as an effort to engineer a soft landing for the economy. The rate cut, which lowered the overnight lending rate to a range of 4.75% to 5.00% from 5.25% to 5.50%, was the first in four years and surprised some who had expected a more cautious approach. Tech stocks rallied on the positive impact of the rate cut on investor sentiment.
Major tech companies, including Apple, Microsoft, Google parent Alphabet, Amazon, and Facebook, saw significant gains. Financial and industrial stocks also experienced increases, reflecting optimism about lower rates spurring economic growth. Timothy Chubb, chief investment officer at Girard Advisory Services, commented, “It’s not surprising to see the markets bounce pretty nicely today.
Fed’s unexpected rate cut impact
We were getting a little long in the tooth with some of the earnings growth estimates. There’s certainly a lot of companies within the market that are going to benefit from having looser monetary policy conditions, particularly small caps.”
Despite the overall market rally, not every sector of the S&P 500 participated fully.
Utilities, real estate, and consumer staples were among the underperformers, while information technology and communication services saw substantial gains. Historical data suggests that record highs in September usually precede a strong fourth quarter. Since 1950, the S&P 500 has reached record levels in September on 22 occasions, and in 20 of those instances, the index has followed with robust fourth-quarter performance.
However, BlackRock cautioned that the near-term outlook remains uncertain, citing seasonal volatility and election year uncertainties. The firm reduced exposure to U.S. stocks and growth stocks in its latest model portfolio update. As the broader market rallied, more than 2,200 stocks rose at the New York Stock Exchange, outnumbering decliners by more than four-to-one.
U.S. crude oil prices also recovered losses for the year, rising 2% to trade above $72 per barrel, finding support after the Fed’s substantial rate cut.
