By Fred Imbert, CNBC–
Stocks rose sharply Thursday after the Federal Reserve hinted at possible interest rate cuts as soon as next month.
The S&P 500 surged 0.9%, hitting a record high of 2,954.33 as the tech and energy sectors outperformed. The Dow Jones Industrial Average gained 256 points at the open, led by Caterpillar and Exxon Mobil. The Nasdaq Composite was up 1.1%. The Dow was also within 1% of its record high, while the Nasdaq remained 1.3%.
The Fed said Wednesday it stands ready to battle growing global and domestic economic risks as they took stock of intensifying trade tensions and growing concerns about inflation. Most Fed policymakers slashed their rate outlook for the rest of the calendar year by approximately half a percentage point in the previous session, while Chairman Jerome Powell said others agree the case for lower rates is building.
Policymakers also dropped “patient” from the Fed’s statement and acknowledged that inflation is “running below” its 2% objective.
Market participants viewed the overall tone from the U.S. central bank as more dovish than expected. Traders are now pricing in a 100% chance of a rate cut next month, according to the CME FedWatch tool.
“The Fed is not in the business of validating market pricing except when they are both heading in the same direction, and that is what the central bank did yesterday,” said Steven Blitz, chief U.S. economist at TS Lombard, in a note. “Without an economic emergency on his hands — and there isn’t one — we could view yesterday’s no-cut cut as a simple declaration of the Fed’s independence while, at the same time, solidifying in the market the easing the Fed wants priced in.”
The Fed’s message sent the 10-year Treasury yield below 2% for the first time since November 2016. Investors bid stock futures higher overnight on the decline in the benchmark for mortgage rates and corporate bonds. The yield stood at 2.8% in January.
The dollar also took a hit against other major currencies. The dollar index dropped 0.5% to 96.62, led by a 0.7% slide in the euro. The yen and Canadian dollar also rose against the U.S. currency.
Netflix and Amazon were among the best performers, rising more than 1% each. Facebook, Apple and Alphabet also traded higher.
These are some of the best-performing stocks of the past 10 years. Low rates have been fuel for the bull market, allowing companies to borrow money cheaply to repurchase stock. Tech stocks have led the gains over the years.
Energy shares got a boost from higher oil prices. The Energy Select Sector SPDR Fund (XLE) climbed 1.8% as shares of Exxon Mobil gained 1.6%. Oil prices surged 4.3% after a U.S. official said a drone was shot down over Iranian airspace.
CNBC’s Sam Meredith contributed to this report.
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