On Thursday, the financial markets celebrated a significant milestone as both the Dow Jones Industrial Average and the S&P 500 reached all-time highs, just a day after the Federal Reserve announced a considerable reduction in interest rates by 50 basis points. This strategic decision by the central bank sparked optimism among investors, leading to a notable rally across major stock indices. Specifically, the Dow Jones rose by 1.3%, closing at an impressive 42,025.2, whereas the S&P 500 surged by 1.7%, settling at 5,713.6.
This marks the first occasion where both indices have surpassed the levels of 42,000 and 5,700, respectively. Concurrently, the Nasdaq Composite noted a significant uptick, soaring 2.5% to reach 18,014. A pivotal factor contributing to this optimistic market trend is the performance across various sectors, particularly within technology.
The technology sector led the way with gains of 3.1%, invigorating investor confidence amidst declining performances in consumer staples and utilities, which saw the steepest downturns. The Federal Open Market Committee's decision to cut the benchmark lending rate to a range of 4.75% to 5% was unexpected for many economists, with a Bloomberg-compiled consensus predicting a more modest reduction of only 25 basis points.
Prior to the rate cut, all three major US equity indexes declined on Wednesday, underscoring the market's volatile nature. Morgan Stanley highlighted that Fed Chair Jerome Powell’s assertions during the announcement indicated a commitment to aggressive monetary policy action, aimed at addressing inflation concerns and maintaining economic stability.
The FOMC also revised its Summary of Economic Projections, signaling lower median federal funds rate outlooks from 2024 to 2026 while acknowledging a potential rise in unemployment expectations. Scotiabank interpreted this as a clear signal of heightened concern from policymakers regarding the risks faced by the US economy, leading to the implementation of more easing measures.
Meanwhile, Deutsche Bank noted Powell's portrayal of a fundamentally strong economy, showcasing a labor market that remains stable, albeit with signs of cooling. Market reactions were also influenced by other economic indicators. The yield on the US 10-year Treasury note increased by 3.4 basis points, reaching 3.72%, while the two-year yield saw a minor decline of 1.5 basis points to 3.59%.
The latest data revealed a decrease in weekly applications for unemployment insurance, reaching the lowest levels recorded since May, further indicating resilience in the labor market. Despite a mixed picture in housing, the National Association of Realtors highlighted that existing home sales fell more than anticipated.
Still, there is an expectation that lower rates could stimulate demand in the upcoming months. On a positive note, manufacturing activity in the Mid-Atlantic region rebounded more strongly than predicted for the month, according to the Philadelphia Fed. Oil markets also experienced shifts, with West Texas Intermediate crude oil climbing 1.4% to $71.91 per barrel, reflecting global demand trends. In corporate news, Darden Restaurants (NYSE: DRI) maintained its full-year outlook despite reporting fiscal first-quarter results that fell short of expectations due to a slowdown in customer traffic during July.
The company also disclosed an exclusive multiyear delivery partnership with ride-hailing leader Uber Technologies (NYSE: UBER), which added to Darden’s positive financing narrative as its shares increased by a noteworthy 8.3%, making it the top performer on the S&P 500. Conversely, Uber’s stock rose by 2.4% following the announcement. Electric vehicle manufacturer Tesla (NASDAQ: TSLA) showcased an impressive performance, becoming the top gainer on the Nasdaq and the second-best performer on the S&P 500 by climbing 7.4%.
Conversely, Moderna (NASDAQ: MRNA), a leading drugmaker, experienced a downturn, with its shares falling by 2.6%, marking the sharpest decline on the Nasdaq. In the commodities market, gold prices increased by 0.5%, reaching $2,612.20 per troy ounce, while silver saw a rise of 1.5% to $31.14 per ounce.
As these financial and economic narratives unfold, market stakeholders remain vigilant and responsive to evolving data and trends..