US Market Reaction To Fed Rate Cut: Dow Jones, S&P 500 Hits New All-Time High; Which Stocks To Win?

Wall Street cheered the first rate cut in four years by the US Federal Reserve on September 18, 2024. Bulls led a rally after the rate cut was an aggressive 50 bps, rather than a softer and most expected 25 bps. As per experts, the latest Fed decision aims to boost the economy amid easing inflation, which is welcomed by investors.

Wall Street which dulled a few minutes ahead of the policy, witnessed heavy buying after the policy outcomes were announced.

At the time of writing, the Dow Jones Industrial Average surged by 154.45 points or 0.4% to trade at 41,760.63. But the index touched a fresh record high of 41,981.97.

While the S&P 500 index zoomed by 0.5% to trade at 5,666.10, after hitting a new lifetime high of 5,689.75. Although, the tech-heavy index Nasdaq Composite could not join the trend of record highs, but still garnered significant upside of 175 points or 0.99% to trade at 17,804.24. Nasdaq touched an intraday high of 17,832.70.

The US dollar index toppled against a basket of currencies, to 100.45 which would be the lowest level since July 2023 when the Fed froze interest rates at a 23-year high. The AUX/USD paid jumped towards the 0.6800 level, while the euro surged to $1.1164. Also, the Japanese currency strengthened against the dollar which slipping by 0.86% to 141.17 yen.

According to Sebi-registered equity analyst and Author Finance, Chirag Jain, the US Federal Reserve cuts interest rates by 50 basis points, bringing the benchmark rate to 4.75-5.00%. This marks the first interest rate reduction in four years, aiming to boost the economy amid easing inflation.

He pointed out that US inflation has cooled to 2.5% in August 2024, meeting the Fed's 2% target. While the labor market shows signs of slowing, with weaker-than-expected jobs reports in early September.

Further, he said, "Markets react positively, with stocks and bonds rallying, and the US dollar index declining," adding, "The Fed's decision was somewhat unexpected, with traders initially pricing in a 25 basis-point cut."

As per Jain, housing finance companies, banks, automobiles, and IT/metal stocks are expected to benefit from the rate cut.

In light of the progress on inflation and the balance of risks, Fed decided to lower the target range for the federal funds rate by 1/2 percentage point to 4-3/4 to 5 percent.

On September 18, in a statement, FOMC led by chair Jerome Powell said, "The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run."

FOMC added, the Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and the Committee is attentive to the risks to both sides of its dual mandate.

Also, the FOMC stated that recent indicators suggest that economic activity has continued to expand at a solid pace. Job gains have slowed, and the unemployment rate has moved up but remains low.

However, despite the latest cooling in inflation, Fed believes the consumer price remains somewhat elevated.

It said, "Inflation has made further progress toward the Committee's 2 percent objective but remains somewhat elevated."

Going ahead, the rate decisions and policy stance in the upcoming policies will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments, as per Fed.