U.S. stocks experienced a significant rally, with the Dow Jones Industrial Average (^DJI) closing above the 42,000 mark for the first time, fueled by optimism that the Federal Reserve’s substantial interest rate cut will facilitate a “soft landing” for the economy.
The S&P 500 (^GSPC) rose approximately 1.7%, while the Dow gained over 1.2%, both indexes reaching record highs. The Nasdaq Composite (^IXIC) led the charge with an impressive increase of around 2.5%.
Investor enthusiasm surged as they digested the Fed’s decision to initiate its new rate cycle with a 50 basis point cut. Following Wednesday’s policy announcement, market indexes fluctuated before ultimately closing lower. However, Wall Street has embraced Fed Chair Jerome Powell’s message that a substantial cut in a relatively strong economy is intended to mitigate recession risks, reflecting confidence rather than panic about current economic conditions.
Bank of America has adjusted its forecast, now predicting the Fed will implement a total rate cut of 0.75% by year-end, up from a previous estimate of 0.50%. In contrast, the central bank’s own “dot plot” suggests policymakers anticipate a half-percentage-point reduction.
Growth stocks, particularly those sensitive to interest rates, saw notable gains, with major tech companies contributing significantly to this year’s market upswing. Shares of Alphabet (GOOG), Microsoft (MSFT), and Meta (META) all advanced, with Apple (AAPL) rising more than 3%. Tesla (TSLA) and Nvidia (NVDA) also experienced strong gains.
With the Fed’s pivot complete, market participants are shifting their focus back to economic data releases, preparing for potential market fluctuations. A weekly report from the Labor Department revealed that initial jobless claims dropped to their lowest level in four months, with the week ending September 19 recording 219,000 claims. The previous week’s total was revised upward by 1,000 to 231,000.
