The Federal Reserve made a bold move on Wednesday, cutting interest rates by 0.5% in a move that sent markets soaring. This marked the beginning of the central bank’s highly anticipated rate-cutting cycle, a move designed to stimulate the economy.
The 0.5% rate cut brought the target fed funds rate to a range between 4.75% and 5%, down from a 23-year high of 5.25% to 5.5%. It was the first rate cut since March 2020, reflecting a shift in the Fed’s stance on inflation and economic growth.
The SPDR S&P 500 (SPY), which tracks the S&P 500 index, climbed 0.44% to all-time highs. Several key names like Arm Holdings Plc (ARM), The Trade Desk Inc (TTD), Toyota Motor Corp (TM), General Motors Co (GM), and Marriott International (MAR) led the charge.
The materials sector, as measured by the Materials Select Sector SPDR Fund (XLB), showed the most strength, rising approximately 0.6% following the Fed’s decision. The energy sector, tracked by the Energy Select Sector SPDR Fund (XLE), on the other hand, was the weakest, falling 0.3%. This relative weakness followed a strong performance earlier in the day, likely due to the anticipation of the Fed’s decision.
Here’s a breakdown of how various ETFs tracking the Dow Jones Industrial Average, tech stocks, small caps, treasuries, and gold performed:
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SPDR Dow Jones Industrial Average ETF (DIA):
Up 0.38% at $418.87.*
Invesco QQQ Trust (QQQ):
Up 0.59% at $476.25.*
iShares Russell 2000 ETF (IWM):
Up 2.31% at $224.36. Small caps significantly outperformed broader markets, both before and after the rate cut.*
iShares 20+ Year Treasury Bond ETF (TLT):
Down 0.36% at $100.48.*
SPDR Gold Trust (GLD):
Up 0.66% at $239.02. Gold, too, hit all-time highs following the Fed’s decision.The Fed’s rate cut also sparked volatility in crypto markets. Bitcoin (BTC/USD) was down 0.86% over a 24-hour period, trading at $60,480, but had recovered from its lows for the day. Ethereum (ETH/USD) fell 1.79% to $2,322.
This increased volatility likely stems from the uncertainty surrounding the Fed’s future policy direction. According to CME’s FedWatch tool, the market was expecting a 61% chance of a larger 0.5% rate cut going into the meeting, compared to a 39% chance of a smaller 0.25% cut.
Benzinga reported that the updated quarterly Dot Plot, which provides insights into the Fed’s future policy intentions, suggests a more aggressive path for rate cuts than previously anticipated. The median projection now forecasts a total of 1% in rate cuts in 2024.
The SPDR S&P 500 (SPY) was up 0.44% at $565.62 at the time of publication, according to Benzinga Pro.
The Fed’s decision to cut rates signals a shift in its approach to managing inflation and economic growth. It remains to be seen how these moves will impact the broader economy in the long term. You can watch Federal Reserve Chair Jerome Powell’s press conference to gain further insights into the Fed’s reasoning and future plans.
