S&P 500, Gold Strike All-Time Highs, Small Caps Rally After Fed Slashes Interest Rates

Editor’s note: This story has been updated with additional information.

Markets are bouncing Wednesday afternoon following the Federal Reserve’s decision to cut rates by 0.5%, marking the beginning of the central bank’s highly anticipated cutting cycle.

What To Know: Wednesday’s 0.5% rate cut brings the target fed funds rate to a new range between 4.75% and 5%, down from a 23-year high of 5.25% to 5.5%. It’s also the first rate cut since March 2020.

The fed funds rate has been sitting at a range between 5.25% and 5.5% since the central bank last hiked in July 2023.

The SPDR S&P 500 SPY, which tracks the S&P 500 index, was up 0.44% at all-time highs at last check, led higher by a variety of names like Arm Holdings Plc ARM, The Trade Desk Inc TTD Toyota Motor Corp TM, General Motors Co GM and Marriott International MAR.

The materials sector, as tracked by the Materials Select Sector SPDR Fund XLB, was showing the most strength at the time of writing, climbing approximately 0.6% following the Fed decision. The energy sector, tracked by the Energy Select Sector SPDR Fund XLE, was the weakest, down 0.3% following the rate cut. Energy stocks had performed well on Wednesday ahead of the Fed decision, which may explain some of the relative weakness in afternoon trading.

Here’s a look at how various ETFs tracking the price-weighted Dow Jones Industrial Average, tech stocks, small caps, treasuries and gold are faring following the Fed’s latest move.

• SPDR Dow Jones Industrial Average ETF DIA: up 0.38% at $418.87.

• Invesco QQQ Trust QQQ: up 0.59% at $476.25.

• IShares Russell 2000 ETF IWM: up 2.31% at $224.36. Small caps outperformed broader markets ahead of the rate cut and continued to outperform in afternoon trading.

• IShares 20+ Year Treasury Bond ETF TLT: down 0.36% at $100.48.

• SPDR Gold Trust GLD: up 0.66% at $239.02. Gold hit all-time highs following the Fed’s rate decision.

It’s also worth noting that crypto markets are volatile following the Fed decision on rates. Bitcoin BTC/USD was down 0.86% over a 24-hour period, trading at $60,480, but well off its lows for the day, and Ethereum ETH/USD was down 1.79% at $2,322.

Check This Out: Federal Reserve Delivers Bold 0.5% Rate Cut, Signals Further Easing Ahead

The increased volatility is likely a result of uncertainty heading into the meeting. According to CME’s FedWatch tool, the market was projecting a 61% chance of a larger 0.5% rate cut heading into the meeting versus a 39% chance of a smaller 0.25% cut.

As reported by Benzinga, the updated quarterly Dot Plot, which helps signal the Fed’s future policy intentions, indicates a more aggressive path for rate cuts than previously projected following Wednesday’s 0.5% cut. The median projection now calls for a total of 1% in rate cuts in 2024.

SPY Price Action: At the time of publication, the SPDR S&P 500 was up 0.44%, trading at $565.62, according to Benzinga Pro.

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This illustration was generated using artificial intelligence via Midjourney.