Wall Street Hits Record Highs in Global Rally Following Fed Rate Cut

NEW YORK — Wall Street experienced a record-setting day as global markets reacted positively to the recent Federal Reserve decision to cut interest rates significantly. This major policy shift marked the first reduction in over four years, causing relief and excitement among investors.

The S&P 500 surged by 1.7 percent, achieving one of its strongest performances this year and surpassing its previous all-time high from July. Meanwhile, the Dow Jones Industrial Average rose 522 points, or 1.3 percent, also exceeding its record set just three days prior. The Nasdaq composite took the lead with an impressive 2.5 percent increase.

The rally was broad-based, with Darden Restaurants, which owns well-known brands like Olive Garden and Ruth’s Chris, shining in the S&P 500 with an 8.3 percent climb. The company reported improved sales trends since July and announced a new delivery partnership with Uber, further boosting investor confidence.

Technology giant Nvidia contributed significantly to the market’s upward momentum, rising by 4 percent. This increase eased concerns around the valuation of shares for Nvidia and other tech leaders, particularly in the wake of the growing interest in artificial intelligence technologies.

Wall Street’s rally came on the heels of gains across European and Asian markets following the Federal Reserve’s announcement. The Fed’s decision was a significant turning point, as it ended a policy period that kept interest rates at a two-decade high in an effort to combat inflation.

With inflation now receding from its peak experienced two years ago, Fed Chair Jerome Powell indicated a shift in focus towards sustaining a robust job market and avoiding a recession. This policy recalibration has generated optimism among investors about the Fed’s strategy for managing inflation and economic growth.

The initial market response to the announcement was muted, as many investors had anticipated the rate cut for months. Stocks oscillated throughout the day and ultimately closed lower before rebounding strongly following Thursday’s opening.

“We came in today and saw a reversal of the previous day’s reversal,” remarked Jonathan Krinsky, chief market technician at BTIG, who expressed surprise at the substantial stock market rise.

Analysts noted a sense of relief after Powell’s remarks, which signaled that the Fed’s deeper interest rate cut was a part of a deliberate policy adjustment rather than a hurried move to avert a potential recession. This perception boosted confidence in the Fed’s ability to control inflation while sustaining economic growth.

Supporting this optimism were two key economic reports released on Thursday. One indicated a decrease in weekly jobless claims, suggesting that layoffs remain low nationwide. However, the job market is beginning to slow due to the pressures from rising interest rates, leading some to argue that the Fed may have delayed necessary action.

Powell reassured that the Fed is not in haste to impose further changes and will assess its policies based on forthcoming data at each meeting.

In the aftermath of the Fed’s announcement, some investment banks increased their forecasts for future rate cuts, with expectations for additional reductions in 2024 and 2025. Currently, the federal funds rate sits within a range of 4.75 percent to 5 percent.

Lower interest rates typically encourage borrowing for both households and businesses, providing a stimulus to the economy. They also tend to elevate the prices of various investments, such as gold, bonds, and cryptocurrencies. Notably, Bitcoin surged above $63,000 on Thursday, a remarkable increase from around $27,000 a year ago.

While market sentiment was buoyant as investors embraced the notion of “not fighting the Fed,” the unique economic landscape following the COVID-19 pandemic has rendered traditional investment wisdom uncertain.

Concerns linger about inflation’s persistence and the potential for lower rates to inadvertently fuel further price increases. The upcoming U.S. presidential election adds to the unpredictability, with fears that if both major parties advocate for policies increasing government debt, it could counteract the Fed’s efforts.

With the economic landscape marked by atypical conditions, strategists have noted a higher expectation for rate cuts than in previous cycles. Some comparisons have been drawn to 1995; however, experts affirm that distinguishing similarities are scarce.

In the bond market, the yield on the 10-year Treasury remained steady at 3.71 percent, while the two-year yield, which closely follows Fed expectations, dropped to 3.58 percent from 3.63 percent.

In terms of stock market performance, the S&P 500 rose by 95.38 points to close at 5,713.64. The Dow climbed 522.09 points to finish at 42,025.19, and the Nasdaq composite gained 440.68 points, reaching 18,013.98.

Globally, stock indexes saw similar upward trends, with France increasing by 2.3 percent, Japan advancing by 2.1 percent, and Hong Kong by 2 percent. The FTSE 100 in London rose by 0.9 percent following the Bank of England’s decision to maintain its interest rates. Attention now turns to the Bank of Japan’s forthcoming decision on interest rates, expected on Friday.

Source: AP