S&P 500 Hits New High After Fed Rate Cut: Bullish Forecast for US Stocks

U.S. Stock Market Rallies After Fed’s First Rate Cut in Four Years

The U.S. stock market surged on Thursday following the Federal Reserve’s first interest rate cut in four years. After an initial muted reaction, markets rallied as investors embraced the potential benefits of easing monetary policy. The S&P 500 jumped, reaching a new intraday high, rebounding from a 0.3% decline in the previous session. Treasury yields continued to rise, with the 10-year yield climbing to 3.75%.

At 16:29 GMT, the Dow Jones Industrial Average is trading 42034.71, up 531.61 or +1.28%. The S&P 500 Index is 5722.12, up 103.86 or 1.85% and the Nasdaq is trading 18069.25, up 495.95 or +2.82%.

Tech and Financial Stocks Lead Gains

Technology stocks were among the top performers. Nvidia and AMD shares soared over 5% and 4%, respectively, while Micron Technology gained over 2%. Large-cap tech firms like Meta and Alphabet advanced 3.3% and 2.2%. The rate cut appears to have renewed risk appetite, particularly for high-growth tech stocks, as investors bet on a more favorable environment for borrowing and investment.

Financial stocks also saw notable gains, with JPMorgan Chase rising 1.5%. Industrial stocks similarly advanced, driven by expectations that lower borrowing costs will boost economic activity.

Shifting Investor Focus to Corporate Earnings

With the Fed’s decision behind them, investors are now focusing on corporate earnings growth, which has remained robust throughout the year. Analysts suggest that the Fed’s move may bolster the chances of an economic “soft landing,” where inflation cools without significant harm to growth.

Michael Purves, CEO of Tallbacken Capital Advisors, noted that much of the rally could be attributed to the removal of uncertainty following the Fed’s rate cut. Ed Yardeni, founder of Yardeni Research, highlighted the potential benefits for smaller, highly leveraged companies and value stocks that tend to benefit from lower interest rates.

Expectations of Continued Volatility

Despite the positive momentum, some strategists warn of potential volatility in the near term. Karl Schamotta, chief market strategist at Corpay, suggested that foreign exchange markets could face turbulence as traders recalibrate rate expectations in other global economies.

Traders are preparing for Friday’s quarterly expiration of stock options, index options, and futures, totaling approximately $5.1 trillion in notional terms. This event could further increase volatility as traders adjust their positions.

Market Forecast: Cautious Optimism with Near-Term Sector-Specific Volatility

In the short term, U.S. equities are expected to maintain their upward momentum as investors adjust to a more accommodative monetary policy. However, traders should brace for potential volatility, particularly around major data releases and global rate decisions. While the long-term outlook appears bullish, especially for sectors like tech and financials, caution is warranted as markets digest incoming economic data.