Dow Rises to Record Close as Fed Signals Upcoming Rate Cuts

Vida Markets

Thursday 21st March 2024, 7:10 am Time to read: 5 mins.

In a remarkable turn of events that defied the usual market volatility, the Dow Jones Industrial Average, alongside the S&P 500 and Nasdaq, soared to all-time highs, lifted by the Federal Reserve's latest policy. Wednesday's rally came on the heels of the Fed's decision to maintain interest rates at a 23-year peak while projecting three

In a remarkable turn of events that defied the usual market volatility, the Dow Jones Industrial Average, alongside the S&P 500 and Nasdaq, soared to all-time highs, lifted by the Federal Reserve's latest policy. Wednesday's rally came on the heels of the Fed's decision to maintain interest rates at a 23-year peak while projecting three rate cuts by the end of 2024, sparking a wave of optimism across major market indices. This strategic pivot from the central bank, aimed at tackling inflation while supporting economic growth, has revived investor confidence, driving significant gains in both traditional and tech sectors.

Key Takeaways:

Dow Jones Achieves New Heights with 400-Point Surge: The Dow Jones Industrial Average soared by 401.37 points, or 1.03%, to reach a record closing of 39,512.13. This significant jump came in the wake of the Federal Reserve's announcement that it would maintain interest rates but signalled three impending rate cuts by the end of 2024, energising investors.
S&P 500 and Nasdaq Composite Set Records Amid Rate Cut Anticipation: The S&P 500 advanced by 0.89% to close at a historic high of 5,224.62, surpassing the 5,200 level for the first time. Similarly, the Nasdaq Composite experienced a robust increase of 1.25%, ending the day at 16,369.41, as investors rallied around the promise of lower interest rates benefiting tech giants and the broader market.
Federal Reserve Maintains Rate, Eyes Future Cuts with Caution: Despite holding the interest rate steady, the Fed announced plans for three rate reductions before 2024 ends, depending on more evidence of easing inflation, aiming for a sustainable approach towards the 2% inflation target. 
European and Asian Markets Respond to Global Cues: European markets exhibited mixed reactions as the Stoxx 600 edged up slightly by 0.02%, amidst varied sector performances and anticipation of the Fed's decision. Meanwhile, Asian markets showed positive momentum, with the Nikkei 225 surging past the 40,000 mark, and the Hang Seng and CSI 300 indices making modest gains, reflecting a cautiously optimistic global market sentiment ahead of the Fed's rate stance.
Inflation and Economic Growth Projections Adjusted: The US Federal Reserve revised its economic growth expectations for the year upwards to 2.1% from a previous 1.4%, signalling a robust outlook despite inflation concerns. Meanwhile, the UK's inflation rate saw a larger-than-expected drop to 3.4%, suggesting easing price pressures that could influence monetary policy adjustments in Europe.
European Central Bank Signals Potential Rate Cut in June: ECB President Christine Lagarde hinted at a possible rate reduction come June, basing future decisions on inflation trajectory alignment with projections, amidst ongoing inflationary pressures within the Eurozone.
Gold and WTI Prices React to Fed's Dovish Stance: Gold prices surged towards the $2,180 region as the US Dollar weakened post-Fed announcement, while WTI crude oil prices dipped below $81 per barrel, reflecting the dynamic interplay between commodity markets and monetary policy expectations.
FX Today:

EUR/USD Climbs to Multi-Day Highs: The EUR/USD pair experienced a notable uptick, surging past the 1.0900 figure in response to the weakened US dollar. This movement underscores a growing confidence among traders in the euro's position.
GBP/USD Edges Closer to 1.2800 Milestone: The pound gained substantial ground against the dollar, approaching the significant 1.2800 level. This upward trajectory was fuelled by the general retreat of the US dollar across the board, combined with anticipation surrounding the Bank of England's upcoming policy decisions and preliminary S&P Global Manufacturing and Services PMIs.
USD/JPY Reaches Mid-November Peaks: The USD/JPY pair advanced to levels last seen in mid-November, reaching around 151.80. This move reflects the ongoing assessment of the Bank of Japan's recent policy shift, with investors keenly watching Japan's economic indicators and their implications for future currency valuations.
Canadian Dollar Rallies After Fed Announcement: The USD/CAD pair being pushed below the 1.3500 handle. The near-term technical floors have been observed near 1.3460, indicating a potential consolidation phase for the pair but also reflecting an enhanced risk appetite in the market.
Market Movers:

Airlines Ascend on UBS Endorsement: The airline sector experienced a considerable rally, with American Airlines Group and United Airlines Holdings both closing up more than 4% after UBS initiated coverage with a buy rating and a $19 price target for American Airlines. This bullish outlook, alongside similar positive sentiment for Delta Air Lines, Alaska Air Group, and Southwest Airlines, reflects growing investor confidence in the recovery and profitability of the airline industry.
Trade Desk and Mobileye Among Top Gainers: Trade Desk closed up more than 4% after Walt Disney announced it would sell ads through the company's OpenPath technology, highlighting the ad tech firm's growing influence. Additionally, Mobileye saw its shares climb more than 7% on news of Volkswagen deepening its partnership to develop automated driving functions.
Paramount Global Takes the Lead: Shares of Paramount Global surged, closing up more than 4% after the Wall Street Journal reported a significant acquisition offer of $11 billion from Apollo Global Management for its film and TV studio. 
Cruise Line Operators Navigate Higher Waters: Shares of major cruise line operators, including Carnival, Royal Caribbean Cruises, and Norwegian Cruise Line Holdings, advanced (more than 4%) following Bloomberg Intelligence's report on improving margins due to growth in advanced bookings and high occupancy rates. 
FMC Corp and PDD Holdings Enjoy Upgrades and Earnings Beats: FMC Corp's stock rose more than 3% following an upgrade to buy from neutral by UBS, with a new price target of $84, reflecting optimism about its market position. PDD Holdings also gained more than 3% after reporting fourth-quarter revenue significantly above expectations.
Chipotle Mexican Grill Announces Stock Split: Chipotle's shares appreciated by more than 3% after the board approved a 50-for-1 stock split, indicating strong future growth prospects and making the stock more accessible to a broader range of investors.
Guess Surges on Robust Quarterly Results: Shares of Guess surged by 10% in extended trading following the announcement of strong fourth-quarter earnings. The fashion brand reported adjusted earnings of $2.01 per share on $891 million in revenue, exceeding analyst predictions of $1.56 per share in earnings and $856 million in revenue, as per LSEG.
Micron Technology Leads with Impressive Gains: Micron Technology's shares soared by 13% following a stellar performance that exceeded analysts' revenue. The company announced $5.82 billion in revenue for its second fiscal quarter and projected $6.6 billion for the current period.
Five Below Faces Downturn on Earnings Miss: The value retailer's stock plunged by 13% after disappointing fourth-quarter earnings and a less-than-optimistic outlook. Five Below reported earnings of $3.65 per share on revenue of $1.34 billion, falling short of the LSEG analysts' estimates of $3.78 per share in earnings on $1.35 billion of revenue. 
In a testament to the resilience of the US equity markets, the major averages surged to unprecedented levels on Wednesday, boosted by the Federal Reserve's firm commitment to cutting interest rates three times this year. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite all set new record closing highs, underscoring the market's confidence in the central bank's ability to navigate the economy towards a soft landing. While challenges persist, including persistent inflation and geopolitical uncertainties, investors embraced the Fed's dovish stance, fuelling a broad-based rally that extended across multiple sectors, from technology and financials to consumer discretionary and industrials.


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