Stock Market Today: Dow, S&P 500 score record closes as U.S. stocks extend Fed rate-cut rally
U.S. stocks rallied last week, with both the Dow Jones Industrial Average and the S&P 500 hitting new record highs, after the Federal Reserve cut its key interest rate by half a percentage point.
That was contrary to the expectation of some analysts, who thought a jumbo cut would signal that the Fed was especially concerned with the U.S. economy, and that such a cut could have led to a potential selloff.
The Fed’s jumbo rate cut shows that the central bank is “willing to cut interest rates to defend a 4.4% unemployment rate,” said Jim Caron, chief investment officer at the portfolio solutions group at Morgan Stanley Investment Management.
The Fed last week raised its forecast for unemployment to 4.4% at the end of this year from a prior 4% estimate three months ago. The current U.S. unemployment rate stands at 4.2%.
“If the Fed is going to try to defend labor, it shows that they’re going to try to defend the future cash flow of companies, which is earnings, and also, very importantly, they’re going to try to defend the margins,” Caron said in a phone interview.
“What the equity markets really tried to determine was that the future cash flows are going to be defended, and therefore investors are going to be willing to pay a higher multiple in order to achieve it,” Caron said.