US stocks opened higher on Thursday with the Dow Jones Industrial Average scaling a new peak, a day after the Federal Reserve announced a 50 basis point interest rate cut and indicated there is further room to ease policy before the year ends.
The Dow soared by 600 points or 1.4%, to reach an all-time high of 42,105 minutes after opening. The tech-heavy Nasdaq gained over 400 points or 2.3% to reclaim the 18,000 level.
The S&P 500 climbed nearly 100 points, around a 1.7% jump, to another record high of 5,713. Eight out of 11 sectors on the S&P 500 rallied, with information technology and consumer discretionary gaining the most while utilities declined.
The indices reflected mood in the US futures market as well as momentum in key European indices, all of which gained reacting to the Fed's rate call.
The market also reacted to fresh labour data that showed US weekly jobless claims fell by 12,000 to 219,000, far below estimates. This aided investor sentiment on the Fed's goal to engineer a soft landing for the world's largest economy.
The Fed slashed its key rate for the first time in more than four years by 50 basis points to 4.75-5.00% on Wednesday to stage a soft landing. The big cut was as per expectations, as traders weighed on deeper cuts just ahead of the decision.
"Dot plot" of Fed officials' commentary now expects to lower rates by one percentage point by year-end. The Fed is not in a pre-set course and dot-plot projections are not a policy plan, Chair Jerome Powell stated. "Our recalibrated policy stance will help maintain the strength of our economy and the labour market and continue."
US stocks were choppy on Wednesday and swung between gains and losses around the Fed announcement. Both the headline S&P 500 and Dow Jones initially rallied to new record highs after the Fed decision but eventually closed lower.
Meanwhile, the Bloomberg Dollar spot index rose 0.4% to 101.017, with the greenback gaining over the British pound and Japanese yen. It was flat against the Euro.
Bond yields rose with the benchmark 10-year US Treasury rising 4 bps to 3.74%.
Gold rose 0.7% to $2,577.92 an ounce, while bitcoin gained 4.8% to $63,143.28.
Direction Ahead
Just weeks ahead of the US presidential election, the big banks and the futures markets were all pricing in a 50 basis point cut, with some pushing for a 75 basis point cut, according to Kenny Polcari, senior market strategist of Slatestone Wealth. "It screams of political pandering."
Markets rallied and then it sold off, but there is going to be a digestion of his conversation and then stocks will back off with the election six weeks away, Polcari said, reported Bloomberg.
Jumbo cuts are typically taken in times of crisis and this isn't a typical move to start off in a period where the economy is holding up relatively well, according to Robert Sockin, global economist at Citi Research.
The comment by Jerome Powell sounded like a risk management move, having made enough progress on inflation and ensuring the economy stays strong, he said, Bloomberg reported.
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