In a significant market shift, US benchmark equity indexes experienced gains throughout the trading day as investors assessed the Federal Reserve's decision to lower interest rates by 50 basis points this Wednesday. This strategic move by the Fed has instigated noteworthy fluctuations across major indices.
By midday Thursday, the Nasdaq Composite Index noted an impressive increase of 2.9%, reaching a value of 18,077.7. Concurrently, the S&P 500 Index registered a rise of 1.9%, climbing to 5,727.2, while the Dow Jones Industrial Average saw an advancement of 1.5%, hitting 42,108.1. Notably, the technology sector emerged as the frontrunner, leading the advances with a robust 3.5% surge, while the utilities sector experienced the steepest decline. The Federal Open Market Committee (FOMC) of the central bank made the pivotal decision to adjust its benchmark lending rate to a range between 4.75% and 5%.
Analysts had predicted a minor adjustment, with Bloomberg's compiled consensus indicating a potential reduction of only 25 basis points. In a statement reflecting this substantial commitment, Fed Chair Jerome Powell emphasized the necessity for a significant first move, indicative of their strong confidence in the ongoing progress regarding inflation. The updated Summary of Economic Projections published by the FOMC revealed noteworthy adjustments, as policymakers revised down their median federal funds rate outlooks for the years spanning 2024 to 2026, while simultaneously elevating their expectations concerning unemployment rates.
Derek Holt, the head of capital markets economics at Scotiabank, noted that the committee’s vigorous signal suggests a heightened concern regarding the potential risks confronting the US economy, prompting them to adopt a more easing monetary policy to mitigate these risks. Notably, Deutsche Bank highlighted that Powell's assessment painted a picture of a fundamentally robust economy and a labor market that remained historically solid, despite showing signs of cooling.
The US 10-year Treasury yield rose by one basis point to 3.75% in intraday trading, while the two-year rate remained steady at 3.61%. In additional economic updates, weekly unemployment insurance applications in the US fell to their lowest level since May, indicating favorable labor market conditions.
Analysts from Oxford Economics remarked, "The Fed sent a strong signal indicating a likely further reduction of interest rates by another 50 basis points this year to maintain current labor market states, and the positive claims data from the previous week doesn't alter this outlook." In the realm of real estate, the National Association of Realtors reported that existing home sales in the US declined more than anticipated last month, driven by a drop in the single-family component.
However, analysts speculate that lower interest rates may invigorate demand in the upcoming months. Additionally, West Texas Intermediate crude oil prices saw an increase, rising by 1.6% to settle at $72.06 per barrel during intraday trading. In corporate developments, Darden Restaurants ($DRI) maintained its full-year forecast despite announcing fiscal first-quarter results that fell short of expectations due to reduced traffic in July.
In a separate announcement, Darden and ride-hailing behemoth Uber Technologies ($UBER) disclosed their establishment of an exclusive multi-year delivery partnership. This news propelled Darden's shares to an 8.8% increase, marking it as the top performer on the S&P 500, while Uber's shares climbed by 3.1%. Another notable mention within the equity landscape was Tesla ($TSLA), the electric vehicle manufacturer, which emerged prominently on both the S&P 500 and Nasdaq indices, marking a robust gain of 7.1%. Looking ahead, the financial community is keenly awaiting the quarterly earnings reports from parcel-delivery leader FedEx ($FDX) and prominent homebuilder Lennar ($LEN, $LEN) scheduled to be released post Thursday's market closure. On the commodities front, gold prices increased by 0.7%, reaching $2,615.40 per troy ounce, while silver experienced a jump of 2.4%, standing at $31.41 per ounce..