Dow Hits 48K for First Time Since November Following 25-Basis-Point Rate Cut

Wall Street Surges After Fed Announces Rate Cut

Wall Street's major averages experienced a strong rally on Wednesday following the Federal Reserve's decision to cut interest rates by 25 basis points. This move came as expected, but it was accompanied by some notable dissent within the central bank.

The benchmark S&P 500 (SP500) closed up 0.7%, just 4 basis points away from its record high. Meanwhile, the Nasdaq Composite (COMP:IND) ended the day with a modest gain of 0.3%, and the Dow (DJI) surged by 1.1%, reaching the 48,000 level for the first time since November 12.

The Federal Open Market Committee (FOMC) announced the rate cut, which marks the lowest federal funds rate target in three years at 3.50%-3.75%. However, this decision was not unanimous. Three members of the FOMC dissented, the largest number since 2019. Fed Governor Stephen Miran expressed his preference for a 50 basis point cut, while Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee argued for maintaining current rates.

Federal Reserve Chair Jerome Powell emphasized that the rate cut aims to stabilize the labor market, with expectations of higher growth and neutral unemployment levels. Analysts noted that the Fed is showing caution regarding further rate cuts due to ongoing inflation concerns.

Daniel Jones, an analyst at Seeking Alpha, commented:

“This was largely expected, but not guaranteed. It does appear as though the Federal Reserve is cautious about further rate cuts as inflation continues to be problematic.”

Jones also pointed out that the Fed's statement indicated a slowdown in job gains this year, with rising unemployment being a concern. Despite potential inflationary pressures from tariffs, the central bank seems to be prioritizing job market support over inflation control.

Bond Market Reaction

In the bond market, the 10-year Treasury yield (US10Y) dropped by 4 basis points to 4.15%, while the shorter-end 2-year Treasury yield (US2Y) fell 9 basis points to 3.54%. Additionally, the Fed announced it will begin monthly purchases of $40 billion in short-dated Treasury bills starting Friday to maintain ample reserves in the financial system.

Tech Sector Developments

On the tech front, Adobe (ADBE) saw a slight decline of 0.2% after announcing a partnership with OpenAI (OPENAI) to integrate its creativity tools into ChatGPT.

Sector Performance

At the sector level, industrials (XLI), consumer discretionary (XLY), and healthcare (XLV) were the top performers of the day, while utilities (XLU) lagged behind.

Economic Indicators

Economic data released by the Bureau of Labor Statistics showed that the U.S. Employment Cost Index rose less than expected in the third quarter, with wage growth easing. This development has sparked mixed reactions among analysts.

Jones added:

“Near term, this is encouraging. And as time goes on, lower interest rates will prove beneficial for market participants. However, I continue to believe that the market is discounting the probability of a recession. Jobs data has been very weak this year. And between cuts that the federal government has done on the employment side, and tariff policies that have proven prohibitive for trade, I think that this action by the Federal Reserve is aimed at softening any sort of downturn we are likely to see.”

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