The three major stock indexes on the New York Stock Exchange surged significantly on expectations of an interest rate cut.
Jerome Powell, chair of the U.S. Federal Reserve (Fed), noted the downside risks to employment at the Jackson Hole meeting, causing the stock prices to gain momentum.
On the 22nd (Eastern Time), the Dow Jones Industrial Average closed up 846.24 points (1.89%) at 45,631.74 on the New York Stock Exchange (NYSE).
The Standard & Poor's (S&P) 500 index rose by 96.74 points (1.52%) to close at 6,466.91, while the Nasdaq Composite Index soared by 396.22 points (1.88%) to finish at 21,496.53.
As Powell acknowledged the downside risks in the labor market and expressed a dovish stance, the stock market cheered.
At an economic policy symposium held in Jackson Hole, Wyoming, Powell said, "In the short term, inflation risks are tilted upward and employment risks are tilted downward, which presents a difficult situation," adding, "Considering the stability of the unemployment rate and other labor market indicators, we could carefully weigh a change in policy stance." He continued, "Nonetheless, in a situation where the policy is in a restrictive area, changes in the baseline outlook and risk balance could justify a adjustment in the policy stance."
This suggests that there is a possibility of an interest rate cut at the Federal Open Market Committee (FOMC) meeting in September. While concerns about rising inflation were also mentioned, the market interpreted Powell's comments as focusing on the downside risks to employment and the potential for adjustments in policy.
Powell's remarks are not interpreted as strongly dovish, strictly speaking. The fact that the chair expressed that it "may warrant" a justification in a message reflects that he does not want to lock in a stance. It implies that while the possibility of an interest rate cut is open, it could also be closed, making it more appropriate to interpret this as not being hawkish rather than dovish.
The futures market, calming the excitement of the early trading session, reassessed the bets coolly.
According to the Chicago Mercantile Exchange (CME) FedWatch tool, the federal funds rate futures market reflected an 83.1% probability of a 25 basis point cut in the key interest rate around the close of trading in September. The probability, which exceeded 90% immediately after Powell's remarks, was adjusted downward as his comments were reassessed.
However, the stock market ignored this aspect. In particular, the Dow index, which benefits greatly from an interest rate cut, broke through its all-time high, while the Russell 2000 index, which focuses on small and mid-cap stocks, surged 3.86%.
By sector, all sectors except for essential consumer goods showed strength. Consumer discretionary stocks surged 3.18%, indicating significant benefits from the interest rate cut.
Large technology corporations with market capitalizations exceeding $1 trillion all performed well. Tesla jumped more than 6%, and Alphabet, Amazon, and Meta rose around 2%. NVIDIA, Broadcom, and Apple also saw increases in the 1% range. The expectations are that industrial heat will spread across sectors due to an interest rate cut, with major construction equipment manufacturer Caterpillar rising 4.25%.
On expectations of an interest rate cut, financial stocks including Goldman Sachs, JP Morgan, and American Express also recorded gains of 3%. The real estate sector is also anticipated to rebound with a drop in mortgage rates due to the interest rate cut, leading home improvement retailer Home Depot to rise nearly 4%.
U.S. semiconductor corporation Intel saw its stock price rise by more than 5% after rumors surfaced that the U.S. government would invest a 10% equity stake, with President Donald Trump acknowledging the speculation.
Chris Zaccarelli, chief investment officer (CIO) at Northlight Asset Management, said, "The Fed is currently presenting a very high key interest rate, making it unlikely to hold the rates steady within a month," adding, "It's natural for the market to cheer."
Also, in a media interview that day, Fed president of the Federal Reserve Bank of Cleveland, Beth Hamec, who had previously been hawkish, indicated, "More data will emerge before the September meeting, and I will keep an open mind as I observe the situation."
The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) indicated a decrease of 2.38 points (14.34%) to 14.22.