On Thursday, the financial markets witnessed a remarkable surge as the Dow Jones Industrial Average and the S&P 500 reached unprecedented heights, buoyed by the Federal Reserve's recent decision to reduce interest rates by 50 basis points. The Dow concluded the day with an impressive gain of 1.3%, finishing at 42,025.2, while the S&P 500 climbed 1.7% to rest at 5,713.6.
The Nasdaq Composite outperformed both indices, soaring 2.5% to 18,014, reflecting a broader market optimism primarily driven by the technology sector, which led the pack with a 3.1% increase. However, the consumer staples and utilities sectors experienced notable declines during this trading session. On Wednesday, the Federal Open Market Committee (FOMC) officially announced that it had adjusted its benchmark lending rate to a range of 4.75% to 5%, a move that came after a consensus from Bloomberg had anticipated a lesser reduction of 25 basis points.
Notably, all three key US benchmark equity indexes had closed lower just a day before the Fed's announcement, setting the stage for this notable turnaround. In a note dispatched to clients, Morgan Stanley highlighted Fed Chair Jerome Powell's justification for the more substantial rate cut. "To show their commitment to not falling behind the curve and in their confidence in inflation's progress, Powell asserted a large first move was warranted," the investment bank stated.
This sentiment was echoed in the FOMC's updated Summary of Economic Projections, which revealed that policymakers had adjusted their median federal funds rate outlook for the years 2024 through 2026 downwards while simultaneously raising their unemployment rate predictions. Scotiabank weighed in on the committee's decision, suggesting, “The strong signal from the committee is probably that they are more concerned about the risks facing the outlook for the US economy and seeking to counter them with more easing.” Meanwhile, Deutsche Bank commented on Powell’s outlook, suggesting that he painted a picture of a fundamentally strong economy intertwined with a labor market that, while it has cooled slightly, remains historically robust. As the markets reacted to the Fed's announcements, the US 10-year treasury yield saw an increase of 3.2 basis points, settling at 3.72%, in contrast to the two-year rate which decreased by 1.3 basis points, ending the day at 3.59%.
In terms of economic indicators, the latest government data revealed a decline in weekly applications for unemployment insurance, reaching the lowest point since May. Oxford Economics remarked, “The Fed yesterday sent a strong signal that it will likely lower rates another 50 basis points this year to preserve current labor market conditions, and one week's claims data doesn't alter that perspective.” Further shedding light on market conditions, the National Association of Realtors reported a decline in US existing home sales, which were more significant than anticipated for the previous month.
This downturn was particularly pronounced in the single-family component; however, experts speculate that the recent reductions in borrowing rates may stimulate market demand in the foreseeable future. In addition, manufacturing activity in the US Mid-Atlantic region demonstrated a surprising rebound this month, primarily fueled by an upsurge in employment, which helped counterbalance declines in orders and shipments, as noted by the Philadelphia Fed. In commodity news, West Texas Intermediate crude oil experienced a 1.6% uptick, reaching $72.01 per barrel.
Turning to company-specific news, Darden Restaurants ($DRI) decided to uphold its full-year outlook, even as it reported fiscal first-quarter results that fell short of expectations, primarily due to a slowdown in customer traffic observed in July. In a significant development, Darden announced an exclusive multiyear partnership with ride-hailing giant Uber Technologies ($UBER) for delivery services.
Following the news, Darden shares surged by 8.3%, marking the best performance on the S&P 500 for the day, while Uber also saw a 2.4% increase in its stock price. In the electric vehicle sector, Tesla ($TSLA) emerged as the top gainer on the Nasdaq and the second-best performer in the S&P 500, showing an impressive rise of 7.4%.
Conversely, Moderna ($MRNA), a pharmaceutical company, experienced the steepest decline on the Nasdaq with a drop of 2.6%, also ranking among the poorest performers on the S&P 500. On the commodities front, gold prices climbed by 0.6%, reaching $2,613.70 per troy ounce, while silver rose 1.5%, closing at $31.16 per ounce..