U.S. stocks soared to record highs on Thursday, with the Dow Jones Industrial Average (^DJI) closing above the 42,000 level for the first time, driven by optimism surrounding the Federal Reserve’s recent interest rate cut. Fed’s decision to reduce rates by 50 basis points has sparked hopes of a “soft landing” for the economy, fueling a broad market rally.
S&P 500 (^GSPC) climbed 1.7%, closing just over 5,700, while tech-heavy Nasdaq Composite (^IXIC) led the charge with a 2.5% jump. Major tech firms, including Apple (AAPL), Microsoft (MSFT), Alphabet (GOOG), Meta (META), and Nvidia (NVDA), posted significant gains, boosting investor sentiment.
Fed’s Jumbo Rate Cut Fuels Optimism
rally came after the Federal Reserve kicked off its new rate cycle with a 50-basis point cut, a move seen by many as a vote of confidence in the U.S. economy’s ability to avoid a recession. Fed Chair Jerome Powell emphasized that the rate cut, despite its relatively strong economic backdrop, is intended to stave off future risks. ” Economy is fine,” Powell said, pointing to unemployment, which remains low at 4.2%.
Bank of America has revised its forecast, now predicting Fed will cut rates by 0.75% by the end of the year, compared to its previous 0.50% forecast. This move has boosted investor confidence, particularly in rate-sensitive growth stocks, as the prospect of lower borrowing costs lifts earnings expectations.
Tech Stocks Lead Rally
Technology stocks, particularly the “Magnificent Seven” group, were among the biggest winners in Thursday’s session. Nvidia (NVDA) surged nearly 4%, while Tesla (TSLA) gained over 7%. Apple (AAPL) and Alphabet (GOOG) both saw increases of more than 3%, reflecting renewed confidence in the tech sector’s prospects amid falling interest rates.
The strong performance of the tech giants continues to drive much of the market’s gains this year. Brian Belski, chief investment strategist at BMO Capital Markets, raised his year-end S&P 500 target to 6,100, citing sustained market strength and the growing possibility of a soft landing for the economy. “We continue to be surprised by the strength of market gains,” Belski said, attributing much of the rally to broader returns beyond the tech sector.
Gold and Housing Stocks Also See Gains
Gold futures (GC=F) traded near record highs, hovering above $2,600, as investors flocked to safe-haven assets in response to the Fed’s rate cut. Analysts at Goldman Sachs expect gold prices to rise further, potentially reaching $2,700 by early next year.
Housing stocks also benefited from the rate cut. Shares of homebuilders like Toll Brothers (TOL), D.R. Horton (DHI), and Lennar (LEN) saw gains of more than 1% as the market anticipated further declines in mortgage rates. While the housing market has struggled with high prices and elevated mortgage rates, new home sales have been a bright spot, buoyed by incentives from builders.
Looking Ahead
While the stock market continues to rally, investors remain cautious as they await further economic data and signals from the Fed on its future rate policy. Weekly jobless claims data released on Thursday showed a decline to 219,000, the lowest level in four months, offering further signs of economic stability.
With two more potential rate cuts signaled by the Fed for 2024, market participants are watching closely for signs of volatility as the economy navigates this delicate period.