US Stock Rally: Fed Rate Cut, Cooling Inflation & Strong GDP Drive Record Highs

US stocks hit record highs after Fed's half-point rate cut, cooling PCE inflation, and robust 3% GDP growth. September jobs report awaited.

Stock Market Hits New Highs After Fed’s Half-Point Rate Cut

The Federal Reserve’s decision to cut interest rates by 0.5 percentage points—a dramatic pivot from the aggressive hiking cycle that brought rates to a 23-year high—ignited a rally across U.S. equities. The S&P 500 logged its 42nd all-time closing high of 2024 on Thursday, while the Dow Jones Industrial Average recorded its 32nd record close on Friday. All three major indexes advanced for the week: the Dow rose 0.6%, the S&P 500 added 0.6%, and the Nasdaq Composite gained approximately 1%. The CNN Fear & Greed Index shifted into “greed” territory as investor optimism surged.

Cooling Inflation and Robust GDP Bolster Soft-Landing Hopes

The Personal Consumption Expenditures (PCE) price index—the Fed’s preferred inflation gauge—rose 2.2% year-over-year in August, down from 2.5% in July and below economists’ forecasts. This reading brings inflation closer to the Fed’s 2% target, reducing the likelihood of additional rate hikes. Meanwhile, the third estimate for second-quarter gross domestic product (GDP) confirmed the economy expanded at a solid 3% annualized rate. Gregory Daco, chief economist at EY, suggested the combination of slowing inflation and steady growth points toward a “soft landing”—a scenario many had deemed unlikely just months ago.

Housing Market Relief as Mortgage Rates Hit Two-Year Low

The average rate on a 30-year fixed mortgage fell to its lowest level since September 2022, according to Freddie Mac. This decline provided welcome relief to homeowners and buyers; mortgage refinance applications soared 20% last week, as reported by the Mortgage Bankers Association. Lower borrowing costs are expected to support the housing sector, which had been struggling under the weight of elevated rates.

Tech Stocks Lead the Rally

Technology shares were among the biggest winners. Nvidia jumped 4.6%, Tesla surged 9.3%, and Meta Platforms added 1.1%. Investor appetite for growth stocks remained strong, with the sector benefiting from the lower rate environment and upbeat economic data.

Labor Market in Focus Ahead of September Report

All eyes now turn to the September employment report due next Friday. The economy added an estimated 142,000 jobs in August, up from July’s disappointing numbers, while the unemployment rate edged down to 4.2%. A healthy labor market is critical for sustaining economic momentum and will influence the Fed’s decision at its November policy meeting.

Global and Commodity Markets

Internationally, China’s stock market rose after the central bank announced stimulus measures including interest rate cuts. Oil prices fell for the week, with the national average gasoline price at around $3.21 per gallon, according to GasBuddy. The Financial Times reported that Saudi Arabia is planning to abandon its $100 per barrel price target, contributing to the oil price decline. Gold futures retreated from a fresh record high earlier in the week, as the rally in equities and lower inflation reduced safe-haven demand. Bitcoin climbed to approximately $65,747 per coin, reflecting broad risk appetite.

Outlook

With the Fed’s rate cut, easing inflation, strong GDP, and improving housing conditions, the near-term outlook for U.S. stocks remains positive. The upcoming jobs report will be the next major test. As trading closes, market levels may adjust slightly, but the overall sentiment is firmly bullish.