Falling rates are generally good news for stocks because lower borrowing costs can boost corporate profits and increase the value of investors’ holdings. Photo / 123rf
Stocks on Wall Street notched new highs Thursday (Friday NZT), after a momentous cut to interest rates from the Federal Reserve invigorated a global market rally.
Markets had been butting up against the high for the past two weeks, after recovering from a round of turmoil in late July and
early August. But the Fed’s announcement Wednesday that it would lower rates by a half a percentage point erased uncertainty about a decision that has loomed over financial markets for months.
The Fed’s cut was double the quarter-point adjustment it typically makes, and the central bank projected additional cuts to come this year.
It often takes the market a day or two to determine its path after a big event like the Fed decision, and stocks had wobbled in the immediate aftermath of the rate cut Wednesday afternoon before optimism took hold in the markets overnight.
With a 1.7% gain Thursday, the S&P 500 crossed above its last closing record, reached in mid-July. The Dow Jones industrial average rose 1.3% and also closed at a record. The Russell 2000 index of smaller companies more sensitive to the ebb and flow of the economy rose more than 2%.