U.S. stocks soared on Thursday amid growing optimism that the Federal Reserve’s drastic interest rate cut will lead to a “soft landing” for the U.S. economy.
The S&P 500 Index (^GSPC) climbed about 1.7%, while the Dow Jones Industrial Average (^IXIC) gained more than 500 points, both trading around record closing highs. The tech-heavy Nasdaq Composite (^IXIC) led the gains, up 2.2%.
Stock markets are rising as investors look more closely at the Fed’s decision to kick off its new rate cycle with a 50 basis point cut. After Wednesday’s monetary policy announcement, indicators oscillated before closing lower.
Wall Street has absorbed Chairman Jerome Powell’s message that cutting rates sharply in a relatively strong economy will eventually avert the risk of recession — and is a sign of faith, not panic, about current conditions.
Bank of America now estimates that the Fed will cut rates by 0.75% by the end of the year, up from 0.50% as it had previously forecast. By comparison, the central bank’s own “dot plot” indicates that policymakers expect a cut of half a percentage point.
Learn more: What the Fed’s Rate Cut Means for Bank Accounts, CDs, Loans, and Credit Cards
Rate-sensitive growth stocks rose in premarket trading, with the mega-cap Big Tech stocks that have powered this year’s rally posting gains. Alphabet (GOOG), Microsoft (MSFT) and Meta (META) all gained about 2%, while Apple (AAPL) added more than 3%. Tesla (TSLA) and Nvidia (NVDA) added about 4%.
With the Fed reversing course, some market participants are once again watching data releases for potential volatility. A weekly report from the Labor Department on initial jobless claims released Thursday morning showed a drop to a four-month low. The figure for the week ended Sept. 19 came in at 219,000, while the previous week’s total was revised up 1,000 to 231,000.
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