[New York Stock Market] Market Cheers the Day After Big Cut... Dow and S&P 500 Reach All-Time Highs

The three major indices of the U.S. New York stock market all closed higher on the 19th (local time), the day after the Federal Reserve's (Fed) big cut (a 0.5 percentage point reduction in the benchmark interest rate). With growing expectations of a soft landing for the U.S. economy, the Dow Jones Industrial Average and the S&P 500 index hit record highs.

[Image source=Reuters Yonhap News]

On that day at the New York Stock Exchange (NYSE), the blue-chip-focused Dow index closed at 42,025.19, up 522.09 points (1.26%) from the previous session. The S&P 500 index rose 95.38 points (1.70%) to 5,713.64, and the tech-heavy Nasdaq index finished at 18,013.98, up 440.68 points (2.51%).

Despite the previous day's Fed big cut decision, the three major indices had closed slightly down but rebounded sharply on improved investor sentiment that day. In the S&P 500, eight of the eleven sectors rose, excluding consumer staples, utilities, and real estate. Notably, technology stocks rose more than 3%. All of the Magnificent 7 closed higher, with Tesla's gain exceeding 7%. AI leader Nvidia rose 3.97%, Meta Platforms increased 3.93%, and Apple jumped 3.71%.

Large bank stocks expected to benefit from the rate cut, such as Citigroup (5.21%), Goldman Sachs (3.97%), and Bank of America (3.15%), also showed strength. Caterpillar, the world's largest heavy equipment manufacturer, rose 5.12%, and Home Depot increased 1.65%. Mobileye surged about 15% after Intel announced no plans to sell its stake. The Wall Street Journal (WSJ) reported, "It took some time to be accepted, but investors eventually cheered the Fed's bold rate cut."

Currently, the market's expectation is growing that the U.S. economy will achieve a so-called soft landing?lowering inflation without recession?following the Fed's rate cut. Newly released data also provided positive factors that day. According to the U.S. Department of Labor, initial jobless claims for the week of the 8th to 14th were 219,000, down 12,000 from the previous week. This figure was well below the market expectation of 230,000, helping to ease concerns about a sharp slowdown in the labor market and the possibility of a recession.

Jeremy Siegel, a well-known stock market bull and professor at the University of Pennsylvania's Wharton School, said, "(The big cut decision) is the best news we've heard from the Fed in recent years," adding, "It's good news for both the market and the economy." Brett Kenwell, an investment analyst at eToro, said, "The market is responding positively to the Fed's message," while emphasizing that although concerns about the labor market remain, a soft landing is the base scenario.

According to Evercore ISI, since 1970, the S&P 500 index has risen an average of 14% in the six months following the first rate cut in a monetary easing cycle. BMO Capital Markets forecasted that the S&P 500 could rise to the 6,100 level by the end of the year. However, Tushar Yadav, a strategist on BlackRock's Multi-Asset Strategy and Solutions team, appeared on CNBC and noted, "The market is digesting a lot," pointing out that seasonal volatility and uncertainties related to the November elections could pose short-term burdens on stocks.

The future path of the Fed's monetary policy remains uncertain. Fed Chair Jerome Powell, while implementing the big cut the previous day, emphasized that the 0.5 percentage point reduction is not a new pace for rate cuts. Bank of America (BoA) suggested that the Fed could cut rates by an additional 0.75 percentage points within the year. According to the Chicago Mercantile Exchange (CME) FedWatch, the federal funds (FF) futures market reflected a roughly 71% probability that the Fed would cut rates by more than 0.75 percentage points by year-end. The probability of a total 0.5 percentage point cut within the year, as indicated by the Fed's new dot plot the previous day, was around 28%.

In the New York bond market that day, the benchmark 10-year Treasury yield rose to around 3.73%. Meanwhile, the 2-year yield, which is sensitive to monetary policy, slightly declined to about 3.59%. The dollar index, which shows the value of the dollar against six major currencies, remained steady around 100.6. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street's "fear gauge," fell more than 10% to the 16 level.

Oil prices rose due to the impact of the U.S. rate cut. West Texas Intermediate (WTI) crude oil on the New York Mercantile Exchange closed at $71.95 per barrel, up $1.04 (1.5%) from the previous session. Gold futures closed at $2,614.6 per ounce, up 0.6% from the previous session.