U.S. stock markets rallied sharply higher on Thursday after the Fed cut the benchmark lending rate by 50-basis point a day before. A strong labor market data also bolstered investors’ confidence on risky assets like equities. The Dow and the S&P 500 recorded new highs and the Nasdaq Composite also climbed sharply.

How Did The Benchmarks Perform?

The Dow Jones Industrial Average (DJI) advanced 1.3% or 522.09 points to close at 42,025.19, marking its first close above the key 42,000 level. In intraday trading, the blue-chip index touched an all-time high of 42,160.91. Notably, 19 components of the 30-stock index ended in positive territory while 11 in negative zone.

The tech-heavy Nasdaq Composite finished at 18,013.98, surging 2.5% or 440.68 points due to excellent performance by technology giants. This reflects the tech-laden index’s first close above the crucial technical barrier of 18,000 for the first time since Jul 22.

The major gainer of this index was Tesla Inc. TSLA. The stock price of this electric vehicle giant climbed 7.4%. Tesla currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The S&P 500 rallied 1.7% to finish at 5,713.64, marking its first close above the key 5,700 level. In intraday trading, the broad-market index touched an all-time high of 5,733.75. Eight out of 11 broad sectors of the broad-market index ended in positive territory while three in negative zone. The Technology Select Sector SPDR (XLK) and the Consumer Discretionary Select Sector SPDR (XLU) appreciated 3% and 2.3%, respectively.

The fear-gauge CBOE Volatility Index (VIX) was tumbled 10.4% to 16.33. A total of 12.3 billion shares were traded on Thursday, higher than the last 20-session average of 10.8 billion. Advancers outnumbered decliners within the S&P 500 by a 2.4-to-1 ratio. Across U.S. stock markets, a 3.8-to-1 ratio favored advancing issues.

Fed Initiates a 50-Basis Point Interest Rate Cut

On Sept. 18, in its FOMC meeting, the Fed reduced the benchmark lending rate by 50 basis-points, marking the first cut of the Fed Fund rate since March 2020, at the onset of the COVID-19 pandemic. Although the first rate cut was certain in September, market participants are surprised about its magnitude. The current Fed Fund rate is in the range of 4.75-5%. 

In his post-FOMC meeting statement, Fed Chairman Jerome Powell said, “The Committee has gained greater confidence that inflation is moving sustainably toward 2%, and judges that the risks to achieving its employment and inflation goals are roughly in balance.”

More important, the Fed’s latest “dot-plot” shows a strong possibility of another rate cut of 50-basis point by the end of 2024. The Fed has two more FOMC meeting left this year, scheduled in November and December.

Economic Data

The Department of Labor reported that initial claims decreased 12,000 to 219,000 for the week ended Sept. 14, lower than the consensus estimate of 229,000. Previous week’s data was revised upward by 1,000 to 231,000 from 230,000 reported earlier.

Continuing claims (those who have already received government aids and reported a week behind) decreased 14,000 to 1.829 million for the week ended Sept. 7. The previous week's level was revised downward by 7,000 from 1.85 million to 1.843 million.

The National Association of REALTORS reported that Existing Home Sales in August came in at 3.86 million units, missing the consensus estimate of 3.95 million units. The metric for July was revised marginally upward to 3.96 million units from 3.95 million units reported earlier.

The Conference Board reported that the Leading Economic Index in August declined 0.2% compared with the consensus estimate of a decline of 0.3%. The metric for July was for a decline of 0.6%.

Philadelphia Fed reported that the manufacturing activity index in that region increased to 1.7 in September from -0.7 in August. The consensus estimate was -1.1.

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