2 weeks Ago
US markets jumped on Thursday, a day after digesting the announcements made by the US Federal Reserve with the Dow Jones and S&P 500 closing at record high levels. NSE The 30-stock Dow Jones surged over 500 points to close above the mark of 42,000 for the first time, while the S&P 500 gained 1.7% to close above 5,700 for the first time as well.
Tech stocks outperformed led by Nvidia, AMD, Meta and Alphabet, taking the Nasdaq past the 18,000 level once again with gains of over 2.5% on Thursday. Traders got some validation that the Fed was trying to engineer a soft landing for the economy after weekly jobless claims reported on Thursday fell by 12,000 to 2,19,000, which was well below estimates.
Gains also came from banking names like JPMorgan Chase and Industrial names like Caterpillar and Home Depot. While a relative sense of calm prevailed, traders also braced for a quarterly episode known as “triple witching” in which derivatives contracts tied to stocks, index options and futures will mature — potentially amplifying market moves. About $5.
1 trillion are set to expire Friday, according to an estimate from Asym 500. The options expiry coincides with the rebalancing of benchmark indexes. “Despite some volatility after the Fed’s rate cut, the S&P 500’s bullish trend remains intact,” said Fawad Razaqzada at City Index and Forex.
com. “The Fed’s decision to deliver a 50-basis point rate cut was largely welcomed by investors. The move was seen as a bold but necessary step to ease economic concerns without sending panic signals reminiscent of the 2008 financial crisis.
” Equities tend to respond positively to falling policy rates over the next year if a recession is avoided, according to Keith Lerner at Truist Advisory Services Inc. There have been six rate cutting cycles for the Fed since 1989 and stocks have been up a year later in four of six instances, he noted. Looking a bit more granularly, US large caps have outperformed small caps in the year following the first rate cut in four of the previous six instances.
Small caps outperformed, counterintuitively, into the 2001 and 2008 recessions. On a forward price-to-sales measure, the Russell 2000 is trading at the steepest discount to S&P 500 in more than 20 years. “Historically, equity markets have performed well in periods when the Fed was cutting rates while the US economy was not in recession.
We expect this time to be no exception,” said Solita Marcelli at UBS Global Wealth Management. “Our base case remains for the S&P 500 to reach 5,900 by year-end and advance to 6,200 by June 2025.” Marcelli says she believes equity gains will broaden out, with continued potential for growth stocks, particularly in the technology sector, to rise further.
(With Inputs From Agencies.).
