Financial Breakout: S&P 500, Dow Climb to All-Time Highs After Fed Rate Cut

The S&P 500 Index shot to record highs on Thursday, closing at new highs just after the Federal Reserve announced a 50 basis point rate cut and hinted at more steps to come.

The Dow Jones Industrial Average also pleased investors, closing the session at an all-time high, exceeding the 42,000 mark. Such a result was recorded for the first time in its long history.

Large companies that dominated the stock market during the year once again strengthened their positions. Thus, Tesla (TSLA.O) shares rose by more than 7%, while Apple (AAPL.O) and Meta Platforms (banned in Russia) each added almost 4%.

Nvidia's (NVDA.O) success on the back of technological advances in the field of artificial intelligence led to a 4% rise in the company's shares. This contributed to a 4.3% increase in the PHLX semiconductor index (.SOX), strengthening the overall dynamics in the sector.

An additional driver for the stock market was more optimistic jobless claims data, which exceeded analysts' expectations and increased global interest in risk assets.

The Federal Reserve announced a rate cut on Wednesday, beating market expectations. At the same time, Fed Chairman Jerome Powell expressed confidence that inflation is under control. He noted that the U.S. economy continues to demonstrate resilience, and the central bank will adjust the pace of further policy easing depending on economic data.

"The Fed has given a fairly strong picture of the economy, and this has led to an influx of capital into sectors that have not performed well up until this quarter," said James Ragan, director of wealth management research at D.A. Davidson.

Lower interest rates and the Fed's confident statements about inflation control have boosted investor confidence, leading to record gains in the stock market and gains for large companies.

The Russell 2000 index of small-cap companies posted an impressive gain of 2.1%. Lower interest rates have opened up new opportunities for small-cap companies to cut operating costs and boost profits.

The S&P 500 index rose 1.70% to close at a record 5,713.64, its highest level ever. The Nasdaq also posted a strong gain of 2.51% to close at 18,013.98. The Dow Jones Industrial Average was not far behind, adding 1.26% to close at 42,025.19.

Of the 11 key S&P 500 sectors, eight ended the session in positive territory. Information technology led the gains, adding 3.08%, followed by consumer staples, which rose 2.2%.

Fedex shares fell 10% in the after-hours session. The reason was the company's revision of its revenue forecasts for fiscal 2025, which negatively affected market expectations.

BofA Global Research has revised its forecasts and now expects a total of 75 basis points of rate cuts by the end of the year, which is higher than their previous forecast of 50 basis points. This could be a significant factor in future market dynamics.

The S&P 500 has gained an average of 14% in the six months following the first rate cut in a monetary easing cycle, according to Evercore ISI data going back to 1970. This historical data adds to investor optimism ahead of a new round of monetary easing.

September is a rare month for U.S. stock market investors. On average, the S&P 500 has lost 1.2% in the month since 1928, making it one of the weakest periods for stocks.

Despite the overall negative trend in September, the S&P 500 banking sector showed a confident increase of 2.5%. The leaders were such financial giants as Citigroup and Bank of America, which managed to show an improvement in results after cutting their base rates.

Progyny, a company specializing in services for managing fertility programs, suffered a setback. After one of its major clients announced its intention to terminate the contract within 90 days, the company's shares fell by 33%. This was one of the largest declines of the day.

In the S&P 500 index, the number of advancing stocks outnumbered declining ones by two and a half times, which shows strong support from the market. The US stock market as a whole showed even more optimistic dynamics, where advancing stocks outnumbered declining ones by a ratio of 3.8 to one.

Trading volume on U.S. stock exchanges also remained high, reaching 12.3 billion shares, well above the 20-session average of 10.8 billion shares. Such activity indicates continued investor interest in the stock market despite the usual September headwinds.

It wasn't just large companies that benefited from lower interest rates. Small businesses, as represented by the Russell 2000 index, also posted a strong gain of 2.1%. Lower operating costs and cheaper borrowing helped small-cap companies gain ground.

It wasn't just Wall Street that was seeing gains. The MSCI Global Equity Index, which includes stocks from 47 countries, also added 1.66% to 839.98, reflecting a global appetite for risk and growing optimism in global markets.

The number of new jobless claims in the U.S. came in well short of market expectations last week to Sept. 14, signaling continued recovery in the labor market, with the number of new applicants hitting a four-month low.

The decline in jobless claims has led to a selloff in U.S. government bonds, sending yields higher. The yield on the 10-year Treasury note hit a two-week high of 3.768%, up 3.2 basis points to 3.719%, up from 3.687% late Wednesday.

In contrast, short-term Treasury yields fell amid data showing a drop in home sales. According to the report, existing home sales fell to their lowest since 2023. Following this, the yield on 2-year bonds fell 1.5 basis points to 3.5876% from 3.603% the previous day.

Foreign exchange markets also reacted to the economic data. The dollar weakened amid choppy trading. The dollar index, which tracks the greenback against major global currencies such as the euro and yen, fell 0.41% to 100.61.

In Europe, the market reacted optimistically despite the Bank of England's decision to leave interest rates unchanged. The STOXX 600 index, which covers 600 European companies, added more than 1%. The British pound also strengthened, rising 0.5% to $1.3278, reflecting stable market sentiment in the region.

Economic data continues to weigh heavily on financial markets, with bond yields moving, exchange rates gyrating and optimism in Europe lingering despite central bank decisions.

The busy week of interest rate decisions continues on Friday, with the Bank of Japan in the spotlight. While experts do not expect any drastic moves at this stage, the regulator is expected to surprise markets by raising rates as early as October, which would contrast with the global trend of monetary easing.

The Japanese yen weakened further against the US dollar, falling 0.21% to 142.57 per dollar, suggesting that Japanese monetary authorities are willing to maintain flexibility amid expectations for interest rate changes.

Amid global economic uncertainty, gold showed confident dynamics, rising by 1.15% to $2,588.34 per ounce. Investors continue to view gold as a reliable means of protection against economic risks and inflation.

Oil prices also showed gains, supported by expectations that lower global interest rates will support demand growth. Brent crude futures broke the $74 per barrel mark for the first time in a week, ending at $74.88, up 1.67% on the day. U.S. crude also strengthened, rising 1.47% to $71.95 per barrel.

Markets are closely watching the decisions of key central banks, with the Bank of Japan becoming one of the focus areas for a possible rate hike. The weakness of the yen, rising oil prices and stronger gold reflect current investor expectations amid these developments.