All three major U.S. stock indexes reached new highs on Thursday, fueled by growing investor confidence that the recent surge in borrowing costs, driven by post-Covid economic recovery, is nearing its end.
The Dow Jones Industrial Average led the gains, climbing 0.7% or 269 points, ending the day close to the 40,000-point mark. The S&P 500 rose 0.3%, driven by strength in industrial and bank stocks, while the Nasdaq Composite gained 0.2%.
In Europe and Japan, stock indexes also hit record highs. The Bank of England maintained its key interest rate, while Switzerland became the first major economy to lower interest rates since central banks globally began efforts to curb inflation two years ago.
The Swiss National Bank’s rate cut, alongside comments from central bank officials in the U.S. and Europe, indicated a trend towards declining rates across developed economies, despite lingering concerns about inflation.
The Federal Reserve, in its recent meeting, kept its benchmark fed-funds rate steady at 5.25% to 5.5%, with most officials projecting three rate cuts this year. This decision propelled U.S. stock indexes to simultaneous record highs for the first time since November 2021, before the Fed initiated rate hikes.
Carl Riccadonna, chief U.S. economist at French bank BNP Paribas, expressed confidence in expectations for the first rate cut to occur in June following the Fed’s latest projections.
Marcus Frampton, chief investment officer of the Alaska Permanent Fund, suggested that inflation may have cooled even more than indicated by Labor Department data, based on observations of rental rates at apartment buildings owned by the fund across the country.
While official data may paint a picture of high rents in year-over-year comparisons, Marcus Frampton, chief investment officer of the Alaska Permanent Fund, noted that rents have recently been stagnant or declining at many of the fund’s properties. Frampton expressed confidence that the inflation problem may have been resolved, prompting a shift towards fixed income investments in anticipation of potential rate cuts by the Fed and concerns over the stock market’s valuation.
The $78 billion fund has adjusted its stock portfolio towards value shares and away from growth equities, while also increasing positions in gold miners and undervalued Chinese shares, according to Frampton.
Phil Orlando, chief equity strategist at Federated Hermes, highlighted the asset manager’s readiness for a transition towards stocks trading at lower multiples of expected future earnings, taking over from the technology giants that have dominated the market rally.
Orlando expressed caution about the sharpness of this year’s rally, foreseeing a potential decline in stocks once the Fed lowers rates, with a recovery expected post-U.S. presidential election.
Economic data released on Thursday supported the view of a strengthening economy, with existing home sales beating analysts’ expectations and the Index of Leading Economic Indicators showing a slight increase.
Weekly unemployment data indicated a decrease in initial jobless claims, falling below Wall Street forecasts.
Artificial intelligence played a significant role in driving market gains, with Micron Technology leading the S&P 500 after reporting a surprise profit and optimistic outlook fueled by AI server demand. Super Micro Computer rebounded, and Broadcom impressed analysts at an AI event.
However, Accenture disappointed investors with quarterly results, highlighting ongoing challenges in the consulting industry.
In the IPO market, Reddit saw a surge of 48% in its stock market debut, signaling renewed investor enthusiasm for initial public offerings.
Internationally, stocks mostly rose, with European and Japanese indexes closing at record highs, while Chinese stocks experienced mixed performance.