Stock market rally/ rate cut boosts stocks/ Federal Reserve cuts interest rates/ Wall Street surges after rate cut/ Newslooks/ NEW YORK/ J. Mansour/ Morning Edition/ Wall Street surged toward record highs on Thursday as markets around the world celebrated the Federal Reserve’s significant interest rate cut. The S&P 500, Dow Jones, and Nasdaq all rose sharply in early trading, following strong gains in Europe and Asia. The Fed’s decision to cut rates by half a percentage point signaled a shift in focus from controlling inflation to supporting the job market, which bolstered investor confidence.
Fed Rate Cut Ignites Global Market Surge: Quick Looks
- Record Gains: The S&P 500 and Dow Jones approached record highs, rising 1.6% and 1.2% respectively.
- Global Rally: Markets across Europe and Asia also soared after the Fed’s interest rate cut.
- Fed’s Move: The Federal Reserve slashed its benchmark rate by 0.5%, shifting its focus from inflation to the job market.
- Investor Sentiment: Optimism grew as lower rates are expected to ease borrowing costs and support economic growth.
Wall Street Soars as Fed’s Rate Cut Sparks Global Market Rally
Deep Look:
Wall Street hit new heights on Thursday as the markets reacted with enthusiasm to the Federal Reserve’s half-point interest rate cut. After the initial quiet reaction following the Fed’s announcement on Wednesday. Stocks are roaring toward records as a delayed jubilation sweeps markets worldwide following the Federal Reserve’s big cut to interest rates.
The S&P 500 was 1.5% higher in early trading and above its all-time closing high set in July. The Dow Jones Industrial Average was up 489 points, or 1.2%, and on track to top its record set on Monday. The Nasdaq composite was 2.2% higher.
Companies that feel the most relief from lower interest rates and whose profits are most dependent on the strength of the U.S. economy helped lead the way. The Russell 2000 index of smaller stocks rose 1.7%. Nvidia jumped 4.5% as lower interest rates weakened criticism by a bit that its stock price and other Big Techs ′ had grown too expensive in the frenzy around artificial-intelligence technology. The moves followed rallies for markets across Europe and Asia after the Federal Reserve delivered the first cut to interest rates in more than four years late on Wednesday.
It was a momentous move by the Fed, closing the door on a run where it kept its main interest rate at a two-decade high in hopes of slowing the U.S. economy enough to stamp out high inflation. Now that inflation has come down from its peak two summers ago, Chair Jerome Powell said the Fed can focus more on keeping the job market solid and the economy out of a recession.
Wall Street’s initial reaction to Wednesday’s cut was a yawn, after markets had already run up for months on expectations for coming reductions to rates, and stocks ended up edging lower after swinging up and down a few times. “Yet we come in today and have a reversal of the reversal,” said Jonathan Krinsky, chief market technician at BTIG. He said he did not anticipate such a big jump for stocks on Thursday.
Some analysts said it could have been relief that the Fed’s Powell was able to thread the needle in his press conference and suggest the deeper-than-usual cut was just a “recalibration” of policy and not an urgent move that it had to take to prevent a recession.
The rally extended beyond the U.S., with stock markets across Europe and Asia posting significant gains. France’s CAC 40 rose 2%, Japan’s Nikkei gained 2.1%, and Hong Kong’s Hang Seng climbed 2%. Investors around the globe celebrated the Fed’s decision, which marked the first rate cut in over four years.
The Fed’s Big Move
The Federal Reserve’s interest rate cut marks a turning point in its strategy. After raising rates 11 times since 2022 to combat the worst inflation in four decades, the Fed decided it was time to shift focus. Inflation has eased, falling from a peak of 9.1% in 2022 to 2.5% in August 2024, allowing the Fed to turn its attention toward stabilizing the job market and preventing a potential recession.
In his remarks, Fed Chair Jerome Powell said, “We know that it is time to recalibrate our policy to something that’s more appropriate given the progress on inflation.” He emphasized that the rate cut was not a sign of panic, but a planned step to ensure continued economic growth.
Though some critics argue that the Fed may have waited too long to cut rates, Powell reassured investors that the central bank’s decisions would continue to be guided by economic data. “We’re not in a rush,” Powell added, signaling that further rate cuts will be measured and based on market conditions.
Investor Reaction
Initially, Wall Street’s response to the Fed’s rate cut was muted, with markets showing little movement on Wednesday. However, by Thursday, optimism had spread, driving stock prices higher as investors absorbed the long-term implications of lower borrowing costs.
Jonathan Krinsky, chief market technician at BTIG, was surprised by the magnitude of Thursday’s surge. “We come in today and have a reversal of the reversal,” Krinsky said, highlighting the swift turnaround in market sentiment.
The Fed’s decision was welcomed by businesses and investors alike, as lower interest rates make borrowing more affordable. This is particularly important for smaller companies and industries that have been heavily impacted by rising rates in recent years. The Russell 2000 index of smaller companies shot up 2% in early trading, reflecting the relief felt by these businesses.
Lower interest rates are expected to ease the burden on U.S. households and businesses, making it cheaper to borrow for everything from home mortgages to corporate investments. Investors also believe that the rate cuts will help boost a range of asset prices, from bonds to cryptocurrencies. Bitcoin rose 3% on Thursday as part of the broader market rally.
Economic Data and Bond Yields
Economic reports released on Thursday provided further evidence that the U.S. economy remains resilient, despite the challenges posed by higher interest rates. One report showed that fewer workers applied for unemployment benefits last week, signaling that layoffs remain low. Another report indicated that manufacturing activity in the mid-Atlantic region returned to growth, though it was slightly weaker than expected.
In the bond market, Treasury yields ticked up slightly, with the 10-year Treasury yield rising to 3.75% from 3.71%. Bond yields had been falling in anticipation of the Fed’s rate cut, and Thursday’s rise reflected investor confidence in the economy’s ability to withstand higher interest rates.
Looking Ahead
Despite Thursday’s market euphoria, some investors remain cautious. There are concerns that inflation could prove more stubborn than expected, especially if the economy heats up in response to lower rates. Historically, lower interest rates can spur inflation by boosting demand and increasing spending.
Nonetheless, the Federal Reserve is prepared to monitor inflation closely and adjust its policies as needed. Powell made it clear that the Fed is focused on maintaining a balanced approach: “We want to ensure that we continue to make progress on inflation, while also supporting the broader economy.”
Some analysts, including those at Bank of America, are forecasting even deeper rate cuts over the next two years. Federal Reserve officials have signaled that they may reduce rates by another 1.5 percentage points through 2024 and 2025. If inflation remains in check and the job market stabilizes, these cuts could provide further fuel for stock markets and economic growth.
Final Thoughts
Thursday’s stock market surge reflects growing confidence that the Federal Reserve’s rate cut will help stabilize the economy and support growth. While risks remain, particularly around inflation, investors are optimistic that the worst of the economic turbulence may be behind them. As Wall Street eyes new records, the global markets are riding the wave of optimism, hoping for sustained economic recovery in the months ahead.
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