Wall Street rallies after Fed delivers major rate cut, Nasdaq surges 1.16%

US stocks surged on Wednesday after the Federal Reserve slashed interest rates by 50 basis points, marking its first rate cut in more than four years. The decision came as the central bank expressed growing confidence that inflation was moving closer to its 2 per cent target, shifting its focus towards maintaining a healthy labour market.

Brian Jacobsen, chief economist at Annex Wealth Management, highlighted the significance of the move: "The Fed ended the pause with a bang. Cutting by 50 basis points sends a strong signal, and they anticipate another 50 basis points of cuts this year. The strategy is to front-load the cuts, aiming to stabilise unemployment at 4.4 per cent while bringing inflation down to target quickly."

The Fed's decision reflects market expectations that had fluctuated in recent days. According to the CME's FedWatch Tool, there was a 65 per cent probability of a 25 basis point cut last week, but this shifted to a 57 per cent chance for the more substantial 50 basis point cut earlier on Wednesday.

The central bank had maintained borrowing costs at their highest levels in over two decades since July 2023, when it raised interest rates by 25 basis points to a range of 5.25 per cent to 5.50 per cent in its fight against inflation.

Following the rate cut, Wall Street responded positively. The Dow Jones Industrial Average rose 165.62 points, or 0.40 per cent, to close at 41,771.80. The S&P 500 gained 29.06 points, or 0.52 per cent, to 5,663.64, and the Nasdaq Composite climbed 139.26 points, or 0.79 per cent, ending the day at 17,767.32.

Small-cap stocks, which are typically more sensitive to changes in interest rates, also rallied, with the Russell 2000 index rising more than 1 per cent.

Throughout the year, markets have rallied, with all three major indexes reaching record highs on optimism surrounding lower interest rates, a cooling inflation rate, and gradual signs of slowing in the job market.

In a notable stock movement, Intuitive Machines saw its shares soar after securing a NASA contract, further contributing to the day's gains.

As the Fed signals further rate cuts, investors remain hopeful for continued economic growth and market stability.

(With Reuters inputs.)