Stocks Rise as Fed Signals Rate Cut; Yields and Dollar Drop

By Sinéad Carew

NEW YORK – MSCI’s global equities index experienced its largest daily gain in over five months on Wednesday, while the dollar slightly reduced its losses after the U.S. Federal Reserve chose to maintain interest rates. However, the Fed hinted at the possibility of rate cuts as early as September.

In its statement, the central bank aligned with investor predictions, indicating progress toward its 2% inflation target and noting that the economy "continued to expand at a solid pace." It acknowledged that job gains have moderated, but the unemployment rate remains low.

Chair Jerome Powell mentioned to reporters that there is "a growing sense of confidence" regarding potential action at the next meeting, provided that inflation data continues to show a calming trend.

Investors had anticipated unchanged rates along with a clear indication that rate cuts could commence in September, as the Fed has sustained its policy rate within the 5.25%-5.50% range for the past year.

Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma, commented, "It was the worst kept secret that the Fed was not going to cut in July. The Fed is likely to make a move in September with either a 25 or 50 basis point cut, but that may already be reflected in stock prices."

Don Calcagni, chief investment officer at Mercer Advisors in Denver, cited the Fed’s mention of softening inflation and an uptick in unemployment, saying, "If you were going to advocate for rate cuts, those data points are crucial to manage market expectations."

On Wall Street, the Dow rose by 99.46 points, or 0.24%, settling at 40,842.79. The S&P gained 85.86 points, or 1.58%, to reach 5,522.30, and the Nasdaq climbed 451.98 points, or 2.64%, closing at 17,599.40. This marked the largest single-day percentage increase for both the S&P and the Nasdaq since February 22.

MSCI’s global stock gauge increased by 13.12 points, or 1.64%, reaching 814.55, also reflecting its biggest daily percentage gain since February 22. Earlier, Europe’s index closed with a gain of 0.8%.

In the U.S. Treasury market, yields were largely lower, with the benchmark 10-year note yield set for its most significant drop in two weeks following the Fed’s decision to keep interest rates steady. The yield on U.S. 10-year notes decreased by 9.6 basis points to 4.045%.

The yield, which typically correlates with interest rate expectations, fell by 8.7 basis points to 4.276%, hitting its lowest level since February 2.

In currency markets, the dollar extended its losses following the Fed’s statement and Powell’s remarks. Adam Button, chief currency analyst at ForexLive in Toronto, stated, "The Fed wants to let the data play out a little longer, even at the risk of falling behind the curve."

The dollar index, which measures the currency against a basket of others including the yen and the euro, decreased by 0.37% to 104.06. The euro inched up by 0.09% to $1.0825, while against the Japanese yen, the dollar weakened by 1.75% to 150.08 after the Bank of Japan raised rates.

In the energy sector, oil prices recovered from seven-week lows, driven by increased tensions in the Middle East following the killing of a Hamas leader in Iran and a significant reduction in stockpiles. U.S. crude settled up 4.26% at $77.91 per barrel, while Brent crude rose by 2.66% to $80.72 per barrel.

Gold prices saw an uptick following Powell’s hints about potential rate cuts, rising over 1% throughout the day. Gold was last reported to be up 1.63% at $2,447.69 an ounce, while U.S. gold increased by 1.77% to $2,447.60 an ounce.