Topline
Investors reacted giddily to the hotly anticipated Federal Reserve decision to lower interest rates by 50 basis points Wednesday, as the central bank opted for the more stock-friendly route to kick off its rate cutting cycle.
Traders work on the floor of the New York Stock Exchange on Wednesday.
Key Facts
After sitting flat as traders sat on pins and needles ahead of the 2 p.m. EDT Fed release, stocks soared, with the leading indexes S&P 500 and Dow Jones Industrial Average each setting new all-time highs immediately Wednesday after the news.
The benchmark S&P was up 0.6% on the day within about minutes of the announcement, the blue chip Dow was up 0.5% and the tech-heavy Nasdaq was up 0.9%.
The rally was broad, with 11 of the S&P’s 13 sectors in the green for the day, though rate-sensitive information technology and consumer discretionary were the index’s top sectors Wednesday.
The smaller-company Russell 2000 surged about 1.5% as smaller firms are expected to be benefit more heavily from lower borrowing costs.
“Markets can and should only celebrate today’s move,” wrote Principal Asset Management’s Seema Shah in emailed comments, predicting investors “will continue to celebrate over coming months.”
Key Background
Though Wall Street was all but certain the Fed would announce its first rate cut since March 2020 on Wednesday, the market was split almost down the middle on whether the Fed would cut by 25 or 50 basis points. Derivatives contracts betting on the decision indicated 40% odds of the smaller cut and 60% odds of the bigger cut Wednesday, according to CME Group data right before the announcement. The first rate cut in a monetary policy cycle has historically brought gains for stocks, as less enticing bond yields often bring new money into equities and corporate profit margins benefit from cheaper borrowing.
Big Number
34.5%. That’s how much the S&P was up from March 16, 2022, the day before the Fed hiked rates from the near-zero level they sat at since the beginning of the COVID-19 pandemic, and just before the Fed release, including reinvested dividends, according to FactSet data.
Crucial Quote
“The markets got what they wanted,” Chris Larkin, managing director of trading and investing at E*TRADE from Morgan Stanley, wrote in emailed comments. “Now we’ll see if [investors] remain satisfied,” continued Larkin.
For full coverage of the impact of the rate cuts on your finances, see here.
