Fed Rate Cut Fuels Record Highs: S&P 500, Dow Close at New Peaks Amid Cooling Inflation and Strong GDP

Fed's half-point cut drives S&P 500 to 42nd record high; inflation eases to 2.2%, GDP at 3%, and mortgage rates hit two-year low. Jobs report next.

Fed's Aggressive Rate Cut Ignites Market Rally

The Federal Reserve slashed interest rates by 50 basis points—a dramatic shift from its previous hiking cycle—sparking a broad rally across U.S. equities. The S&P 500 closed at its 42nd all-time high of 2024 on Thursday, while the Dow Jones Industrial Average recorded its 32nd record close on Friday. All three major indexes posted weekly gains: the Dow rose 0.6%, the S&P 500 added 0.6%, and the Nasdaq Composite climbed roughly 1%. The CNN Fear & Greed Index moved into “greed” territory as investor sentiment turned sharply bullish.

Inflation Cools While GDP Holds Steady

The Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge—rose 2.2% year-over-year in August, down from 2.5% in July and below economists’ expectations. This brings inflation closer to the Fed’s 2% target, reducing the likelihood of further rate hikes. At the same time, the third estimate for second-quarter gross domestic product (GDP) confirmed a solid 3% annualized growth rate. Gregory Daco, chief economist at EY, noted that the combination of decelerating inflation and steady growth supports the case for a “soft landing”—a scenario many analysts had dismissed months earlier.

Mortgage Rates Plunge to Two-Year Low

According to Freddie Mac, the average rate on a 30-year fixed mortgage fell to its lowest level since September 2022. The decline provided relief to homeowners and prospective buyers; mortgage refinance applications surged 20% last week, according to the Mortgage Bankers Association. Lower borrowing costs are expected to bolster the housing sector, which had been under pressure from elevated rates.

Tech Giants Surge on Lower Rates

Technology shares led the rally, with major names posting strong gains. Nvidia jumped 4.6%, Tesla surged 9.3%, and Meta Platforms added 1.1%. Investor appetite for growth stocks remained robust, benefiting from the lower rate environment and upbeat economic data.

Jobs Report Looms as Next Catalyst

All eyes are now on the September employment report, due next Friday. The economy added an estimated 142,000 jobs in August, up from July’s disappointing figures, while the unemployment rate edged down to 4.2%. A healthy labor market is crucial for sustaining economic momentum and will influence the Fed’s decision at its November policy meeting.

Global Markets and Commodities React

Internationally, China’s stock market rose after the central bank announced stimulus measures including interest rate cuts. Oil prices fell for the week, with the national average gasoline price around $3.21 per gallon, according to GasBuddy. The Financial Times reported that Saudi Arabia plans to abandon its $100 per barrel price target, contributing to the oil price decline. Gold futures retreated from a fresh record high earlier in the week, as the rally in equities and lower inflation reduced safe-haven demand. Bitcoin climbed to approximately $65,747 per coin, reflecting broad risk appetite.

Market Outlook: Bullish but Cautious

With the Fed’s rate cut, easing inflation, strong GDP, and improving housing conditions, the near-term outlook for U.S. stocks remains positive. The upcoming jobs report will be the next major test. While market levels may adjust slightly, the overall sentiment is firmly bullish.