Stocks and US Dollar Surge as Fed Cuts Interest Rates
On October 29, 2023, the U.S. Federal Reserve made a notable adjustment by cutting interest rates by 25 basis points. This decision was largely expected and comes in light of limited economic data availability due to the ongoing government shutdown. The Fed also announced an end to its quantitative tightening program, which involved a $6.6 trillion balance sheet drawdown. This shift is intended to alleviate potential stress in the short-term debt markets.
Impact on Global Markets
Following the Fed’s announcement, global stocks showed robust gains. The rally extended for a fifth consecutive session, with major U.S. indices reaching new record highs. Factors contributing to this rise included easing trade tensions between the U.S. and China, anticipated interest rate cuts, and significant corporate earnings driven by developments in artificial intelligence.
Key Stock Market Developments
- The Dow Jones Industrial Average rose by 119.78 points to 47,826.58.
- The S&P 500 increased by 10.58 points, reaching 6,901.47.
- The Nasdaq Composite climbed by 121.47 points to 23,948.97.
Nvidia made headlines by becoming the first company to achieve a market capitalization of $5 trillion, with its stock rising 4.7% following announcements of new supercomputers for the U.S. Department of Energy. Other key companies like Microsoft, Alphabet, and Meta were also slated to report earnings, further attracting investor attention.
U.S. Dollar Trends
The U.S. dollar continued to perform well, closing up 0.18% at 98.85, following the Fed’s rate cut. Against the euro, the dollar was slightly stronger at $1.1642, and it gained 0.17% against the Japanese yen, reaching 152.36. The Canadian dollar also strengthened, responding to the Bank of Canada’s decision to cut its key overnight interest rate to 2.25%.
Outlook for Economic Policy
In addition to the Fed’s actions, market participants are anticipating announcements from the Bank of Japan and the European Central Bank later this week. Investors remain cautious due to the lack of economic data, particularly about the labor market, as a result of the government shutdown.
Conclusion
The Fed’s decision to lower interest rates and end quantitative tightening has significantly influenced stock markets and the value of the U.S. dollar. As global markets adjust, all eyes are on upcoming earnings reports and additional monetary policy announcements that may shape the economic landscape in the fall.
