US stocks surged on Friday, with all three major indexes gaining over 1%, as Federal Reserve Chair Jerome Powell signalled that the time had come to reduce interest rates.
Powell, speaking at the annual economic conference in Jackson Hole, Wyoming, expressed confidence that inflation was nearing the Fed’s 2% target and pointed to risks in the job market as a key reason for the expected policy shift.
His endorsement of imminent rate cuts boosted investor sentiment, pushing the S&P 500 to within 1% of its all-time high.
“Powell is really data-driven. The unemployment is not alarming, but it’s certainly higher than it has been in the past, and that would be something for him to take action on,” said Kim Forrest, chief investment officer at Bokeh Capital Partners, told news agency Reuters.
“These comments point to cuts beginning, and the market is nodding its head in agreement,” he added.
The Fed’s July meeting minutes also revealed that several policymakers were prepared to consider rate reductions in September, further fuelling expectations. According to CME Group’s FedWatch tool, traders have priced in a 65.5% chance of a 25 basis point rate cut at the Fed’s September 17-18 meeting.
After being hit by a downturn earlier in August, driven by weak employment data and global economic concerns, US stocks have rebounded. The S&P 500, which had fallen as much as 9.7% from its July peak, is now poised to make a comeback, with major indexes gaining for the second consecutive week.
As of 11:41 am (ET), the Dow Jones Industrial Average was up 475.25 points, or 1.17%, at 41,188.03, while the S&P 500 added 63.58 points, or 1.14%, reaching 5,634.22. The Nasdaq Composite climbed 262.29 points, or 1.49%, to 17,881.65.
The rally was broad-based, with all major S&P 500 sectors posting gains. Mega-cap growth stocks like Nvidia, Broadcom, and Apple provided strong boosts. The KBW Regional Banking index also jumped 5.4%, benefiting from the prospect of lower rates.
Among individual stocks, Workday soared 11.6% after reporting better-than-expected second-quarter revenue and unveiling a $1 billion stock buyback plan. Ross Stores rose 3.8% after raising its profit forecast for fiscal 2024, while Intuit tumbled 7.7% following a weaker-than-expected revenue forecast.
Data from the Commerce Department’s Census Bureau offered further positive news, showing sales of new single-family homes in the US reached their highest level in more than a year in July. This bolstered investor optimism, with advancing issues outnumbering decliners on the NYSE by a ratio of 10.48 to 1 and on the Nasdaq by 4.3 to 1.
The S&P 500 recorded 74 new 52-week highs, while the Nasdaq Composite logged 122 new highs against 34 new lows, underscoring the market’s ongoing recovery.