U.S. Stock Markets Hit Record Highs After Fed’s Bold Rate Cut

On Thursday, U.S. stock markets hit record highs, fueled by investor optimism after the Federal Reserve’s decision to cut interest rates by half a percentage point. This marks the Fed’s first rate reduction of this scale in four years, lowering rates from their 23-year peak.

The S&P 500 closed 1.7% higher, reaching over 5,700 points for the first time. The Dow Jones Industrial Average gained 1.3%, surpassing the 42,000 mark, while the Nasdaq Composite led with a 2.5% increase, driven by strong performances in the tech sector​​​.

Key tech companies such as Nvidia, Tesla, and Apple saw significant gains, with Tesla surging over 7% and Nvidia rising nearly 4%. The broader rally in technology stocks helped propel the Nasdaq to new heights​​​.

Investors largely interpreted the Fed’s move as a positive sign. By cutting rates more aggressively than the expected quarter-point adjustment, the central bank aimed to stimulate growth and guard against a potential economic slowdown​​. This approach appears to have reassured investors, despite concerns that such a large rate cut might signal deeper economic issues​.

Global markets followed suit, with major stock indexes in Europe and Asia posting gains. Japan’s Nikkei 225 climbed 2%, and Europe’s Stoxx 600 index recorded its best day in over a month​​.

Fed Chair Jerome Powell emphasized that the U.S. economy remains stable, dismissing fears of a recession. However, he noted a slight weakening in the labor market, with unemployment rising to 4.2%​​.

The Federal Reserve said in a press release:

“Recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.

“The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.”

As markets continue to digest the Fed’s rate cut, analysts predict further reductions before the end of the year, with some forecasting a total decrease of up to 0.75%​​. J.P.Morgan strategists expect there “will likely be two additional rate cuts in 2024, and expect the cuts to continue into 2025.”