Wall Street closed sharply higher on Wednesday, led by a tech rally. The Fed sent signals of a September rate cut in its FOMC meeting. The three most widely followed indexes closed the session in the green.
The Dow Jones Industrial Average (DJI) rose 99.46 points, or 0.2%, to close at 40,842.79. Eighteen components of the 30-stock index ended in positive territory, while 12 ended in negative.
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The tech-heavy Nasdaq Composite gained 451.98 points, or 2.6%, to close at 17,599.40.
The S&P 500 increased 85.86 points, or 1.6%, to close at 5,522.30. Seven of the 11 broad sectors of the benchmark index closed in the green. The Technology Select Sector SPDR (XLK), the Consumer Discretionary Select Sector SPDR (XLY) and the Utilities Select Sector SPDR (XLU) advanced 4.2%, 1.6% and 1.3%, respectively, while the Health Care Select Sector SPDR (XLV) declined 0.4%.
The fear-gauge CBOE Volatility Index (VIX) decreased 7.5% to 16.36. A total of 13.3 billion shares were traded on Wednesday, in line with the last 20-session average of 13.3 billion. Advancers outnumbered decliners by a 2.23-to-1 ratio on the NYSE. On the Nasdaq, advancing issues led decliners by a 1.58-to-1 ratio.
It was no secret that the Fed was not looking to cut interest rates at its end of July meeting that concluded on Jul 31. However, market participants had been eagerly waiting to hear from Fed Chair Jerome Powell in order to set their expectations for a future rate-cut timeline.
Over the past couple of months, talks of a September rate cut have been doing rounds. On Jul 31, Powell lent credence to this conjecture by saying that interest rates could be cut as soon as September if the U.S. economy follows its expected path. This dovish signal sent by the central bank brings it near the end of a multi-year battle against inflation.
"If we were to see inflation moving down more or less in line with expectations, growth remains reasonably strong, and the labor market remains consistent with current conditions, then I think a rate cut could be on the table at the September meeting," Powell said.
Powell's comments confirm what market participants have been expecting for some time now — the Fed would pivot in September, bringing an end to the era of restrictive monetary policy. This also meant that mega-cap tech stocks had a field day, with their prospects looking bright.
This outlook was also reflected in the bond market. The yield on the benchmark 10-year Treasury note slid to 4.05% from 4.14% late Tuesday. It has been declining from 4.70% in April since expectations for impending interest rate cuts gained momentum.
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