By Panos Mourdoukoutas
Technology shares led stocks to new highs this week, lifted by a long-awaited rate cut by the Federal Reserve, major tech investments, and stronger-than-expected retail sales.
The Dow Jones Industrial Average ended the week on Sept. 19 at 46,315, up by 1.05 percent for the week. The S&P 500 Index closed at 6,664, up by 1.22 percent. Both indexes reached new records.
The technology-heavy Nasdaq also advanced by 2.21 percent to a record close of 22,631, while the Russell 2000 climbed by 2.16 percent, extending its recent bull run.
Market volatility, measured by the Chicago Board Options Exchange’s Volatility Index, rose by 4.67 percent, closing above 15, indicating some skepticism among equity market participants over the sustainability of the bullish trend for equities.
The equity markets opened higher across the board on Sept. 15, led by big tech and communications stocks, continuing the positive sentiment from the previous week.
All major indexes ended the day in the green, with Nasdaq closing at a new record as Google’s parent company, Alphabet, topped $3 trillion in market value. Tesla also rallied after CEO Elon Musk bought $1 billion of its shares.
Markets traded sideways on Sept. 16, closing slightly lower, and remained in a holding pattern until after 2 p.m. ET on Sept. 17 when the Federal Open Market Operations Committee (FOMC) released its policy statement.
As expected, the policy arm of the Federal Reserve cut its federal funds rate by 25 basis points to a range of between 4 percent and 4.25 percent, citing a moderation in economic activity in the first half of the year, slower job growth, rising unemployment, and “somewhat” elevated inflation.
The central bank also left the door open for further adjustments, citing incoming data, the evolving outlook, and the balance of risks.
“The state of the economy, as measured by the most recent employment data, is likely what spurred the Fed to action,” Yuval Golan, CEO and founder of real estate financing platform Waltz, told The Epoch Times.
By cutting the federal funds rate, a benchmark for several short-term interest rates—such as adjustable mortgages, home equity, corporate lines, and credit card rates—the Fed aims to stimulate consumer and business spending and economic activity, reigniting job growth and bringing unemployment down.
“The Federal Reserve made the right call today to cut interest rates to try to prevent more layoffs in this economy. While there are inflation risks, the bigger risk right now is more Americans losing their jobs and a downward spiral starting toward a recession,” Heather Long, chief economist at Navy Federal Credit Union, told The Epoch Times.
“Many middle- and lower-income Americans are eager for lower borrowing costs on credit cards, auto loans, home mortgages, and small business loans.”
Still, equity markets closed mixed on Sept. 17, as the rate cut was in line with market expectations and had been fully reflected in equity prices ahead of the FOMC meeting.
The market reversed course on Sept. 18, with bulls returning as analysts expect the Federal Reserve to continue cutting interest rates for the remainder of the year.
“There might be disagreement, but there isn’t much doubt policymakers will keep cutting,” David Russell, head of market strategy at TradeStation, told The Epoch Times. “Inflation may still be a risk, but it’s still too early to worry much. Price stability is fading as a mandate as full employment takes center stage. This is positive for risk assets now, and a big negative for the U.S. dollar.”
Chris Brigati, chief investment officer of Texas-based SWBC, told The Epoch Times ahead of the rate cut announcement, “We believe Wednesday’s expected 25 basis point cut is the start of a cutting cycle for the simple reason that the Fed is pivoting from a more restrictive policy stance to a stimulative one in response to a cooling employment picture.”
The prospect of further interest rate cuts helped the rally spread from the tech stocks to smaller caps, which are the most sensitive to interest rate cuts.
Meanwhile, Nvidia announced a $1 billion investment in Intel to co-develop next-generation data center and PC chips, which also lifted the market.
A better-than-expected retail sales report early in the week reaffirmed the belief among Wall Street bulls that the economy is on a Goldilocks path of moderate growth and moderate inflation—an ideal scenario for equities.
Robert Schein, chief investment officer at Blanke Schein Wealth Management in Palm Desert, California, remains bullish on equities, particularly in tech and financial stocks.
“Now that rates have been moving lower and the Federal Reserve is looking to cut rates a few more times, we are even more bullish on big tech and financial stocks,” he told The Epoch Times.
“Big tech stocks tend to outperform during lower interest rate environments, and financials may see a boost from additional [mergers and acquisitions] and mortgage activity that may come about from lower rates.”
