Leading U.S. stock indexes rose to record levels Wednesday afternoon as the Federal Reserve's projections for strong economic growth as interest rates decline whetted Wall Street’s appetite.
Bulls and doves, unite.
The Dow Jones Industrial Average and S&P 500 each recorded all-time highs Wednesday after each index shot up following the Federal Open Markets Committee’s 2 p.m. update and Fed Chairman Jerome Powell’s subsequent press conference.
The Dow rose 1%, or 370 points, to as high as 39,529, while the S&P rose 0.8% to its new intraday record of 5,226.
Though the Fed didn’t unveil the interest rate cuts long hoped for by many investors – higher interest rates tend to broadly depress public companies’ valuations – the stock market reacted positively to the “dovish details” laid out by the Fed, as described by Carson Group strategist Sonu Varghese.
Policymakers’ quarterly projections released Wednesday showed the Fed expects to institute three interest rate cuts by year’s end, the same as forecasted in December, while projecting the U.S.’ economic output to grow by 2.1%, well above December’s 1.4% forecast.
The ever-cautious Powell even took a fairly optimistic tone Wednesday, telling reporters Americans can expect cuts “fairly soon.”
Powell actually cited the stock market’s recent gains as reason for confidence in the direction of inflation, saying Wednesday: “If you look at the S&P, what it says is that it is still likely, in most people's view, that we will achieve” its goals in stifling inflation.
Strong economic growth and significant rate cuts would be doubly beneficial for stocks, as that indicates a bigger slice of revenues companies may capture while profit margins can expand as borrowing costs decline. The stock market suffered major losses when the ongoing monetary tightening cycle began two years ago in a bid to curb inflation – the S&P crashed nearly 30% between January 2022 and October 2022. Markets later staged a dramatic recovery as many companies focused on conducting leaner operations, excitement grew about the earnings power associated with artificial intelligence and many banked on upcoming interest rate cuts as inflation eased.