Wall Street Indexes Surge to Record Highs Following Federal Reserve Rate Cut
On September 19, major stock indexes experienced a surge to record highs after the Federal Reserve announced a 50 basis-point rate cut. Both the Dow Jones Industrial Average and the S&P 500 Index reached new all-time highs at the closing bell. This stock rally occurred as investors reacted to the news of the interest-rate cut and anticipated further reductions in the future.
Liz Miller, the president of Summit Advisors, explained that the market initially responded positively to the rate cut announcement but experienced some volatility during Federal Reserve Chairman Jerome Powell’s press conference. However, the market ended the day on a flat note. Miller attributed the overnight surge to a renewed feeling of euphoria and confirmation that the Fed has shifted its stance.
The Dow closed at 42,025.19 points, marking a 1.26 percent increase and its highest close ever. Similarly, the S&P 500 rose by 1.70 percent, breaking above 5,700 for the first time and achieving an all-time high. The tech-heavy Nasdaq also experienced significant gains, with a 2.51 percent increase to reach 18,013.98 points.
The rate cut also had a positive impact on major cryptocurrencies. Bitcoin, the most popular cryptocurrency, rose by 5.4 percent to $63,524. This increase was in line with the broader market sentiment.
The rate cut’s impact extended beyond the stock market. The small-cap Russell 2000 Index saw a 2.1 percent increase as lower interest rates boosted expectations of lower operating costs and increased profits. The larger-than-expected rate reduction by the Fed had tangible implications for the economy, including lower mortgage rates.
Chairman Jerome Powell clarified that the rate cut aimed to support a cooling job market, as the balance of risks shifted from concerns about inflation to increasing unemployment. Powell expressed confidence that the labor market could maintain its strength while achieving moderate growth and sustainable inflation levels.
Powell also indicated that the sub-2 percent policy rate of previous years is unlikely to return in the near future. However, the rate cut is expected to alleviate some financial pressures, as the Fed’s shift towards easing leads to a downward trajectory in borrowing costs.
Despite recent slowdowns in hiring and wage growth, Powell dismissed concerns of an impending recession. He highlighted the solid rate of economic growth, decreasing inflation, and a labor market that remains strong. These factors, coupled with the latest weekly jobless claims report showing a drop to a four-month low, indicate that the economy is not on the brink of a downturn.
Economists believe that the risks facing the U.S. economy lean towards further aggressive rate cuts by the Fed. ING analysts noted that their forecasts align with the Fed’s indications, with rates expected to reach 3.5 percent or lower by next summer. They compared the current situation to the mid-1990s, when prompt action from the Fed prevented a recession.
In conclusion, the Federal Reserve’s rate cut has had a significant impact on various sectors, including the stock market, cryptocurrencies, and borrowing costs. While concerns about the labor market exist, the overall economic outlook remains positive. The future direction of interest rates will depend on how the economy evolves in the coming months.
