This Wednesday, the Fed announced that they have made a significant policy move. Finally, announcing the first interest rate cut in years as inflation shows signs of easing.
In a bid to support economic growth while maintaining stable price levels. The central bank reduced its benchmark rate by an unusually large half-percentage point, to between 4.75 and 5 percent. Four more cuts can be expected in 2025 and two in 2026.
The stock market has been hitting records since the Federal Reserve announced this news.
Markets have been encountering resistance for the past two weeks, despite having recovered from a period of volatility in late July and early August. However, after the announcement from the Fed, the drop in the interest rates has erased the uncertainty among investors.
After big events like the Fed decision, it usually takes about 2–3 days for the market to determine its future course. But stocks had stumbled in the wake of the rate cut on Wednesday afternoon before optimism took hold in the markets overnight.
The S&P 500 gained 1.7 percent on Thursday, surpassing its previous record set in mid-July. The blue-chip Dow Jones Industrial Average also registered a record closing high, ending the session above 42,000 for the first time. AI powerhouse Nvidia opens new tab jumped 4%, helping lift the PHLX semiconductor index (.SOX), opens a new tab surge of 4.3%.
Decreases in rates are generally advantageous for stocks because lower borrowing costs can enhance corporate profits and augment the value of investor’s holdings. The hope is that better financial conditions will kickstart a fresh wave of gains that have already boosted the S&P 500 by around 20 percent this year.
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