U.S. stock index futures saw a significant uptick on Thursday, particularly those linked to the Nasdaq, which surged nearly 2%. This momentum followed the Federal Reserve’s decision to cut interest rates by half a percentage point, initiating a new monetary easing cycle that is aimed at fostering economic stability amidst ongoing uncertainties.
Stocks sensitive to interest rates, especially high-growth companies like Microsoft, Meta, and Alphabet, all showed impressive gains, each climbing over 1.5% in pre-market trading. Notably, semiconductor stocks also enjoyed a boost, with Nvidia increasing by 2.8%, Advanced Micro Devices advancing by 3%, and Broadcom jumping 3.4%. Futures tied to the Russell 2000 index rallied 2.5%, reaching their highest mark since late July.
The implications of a lower interest rate environment are profound, as it can lead to reduced operational costs and enhanced profitability for companies that rely on borrowing. As of 04:59 AM ET, the Dow E-minis were up 398 points, or 0.96%, while S&P 500 E-minis rose by 76.25 points, or 1.34%. The Nasdaq 100 E-minis climbed 355.75 points, equivalent to 1.82%.
In response to this decisive move by the Fed, which they emphasized was not a reaction to an emergency, the central bank provided optimistic projections about future economic conditions. Analysts suggest these conditions might allow the economy to achieve an enviable “Goldilocks” scenario, characterized by steady growth alongside low inflation and unemployment rates.
Current market sentiments indicate that traders view a 64.2% likelihood of a 25-basis-point cut during the Fed’s upcoming November meeting, with expectations for a total reduction of 72 basis points by year-end, according to the CME Group’s FedWatch tool and LSEG data.
Investors are also looking forward to upcoming data releases, specifically concerning weekly jobless claims and existing home sales for August. Despite a muted market reaction following the Federal Reserve’s announcement, historical data from Evercore ISI shows that the S&P 500 typically experiences an average gain of 14% in the six months succeeding the initial cut in a rate-reduction cycle.
It’s worth noting that September historically tends to be a challenging month for U.S. equities; in fact, the S&P 500 has an average loss of 1.2% since 1928 during this month. Presently, the index has encountered losses but remains close to record high levels, while the Dow approaches its own significant milestones.
Additionally, major banking institutions responded positively after the Fed’s announcement, with stocks like JPMorgan Chase rising 1.1 %, Bank of America increasing by 1.6%, and Wells Fargo up by 1.5%. Citigroup gained 1.5% following a cut to their base lending rate. Dell Technologies also saw a rise of 2.8% after announcing a quarterly cash dividend.
This period appears promising for potential investors and market observers, as the equities sector braces for key data and further monetary policy adjustments. As the future unfolds, the intersection of economic indicators and central bank decisions will be pivotal in shaping market trajectories.