Wall Street surges to record highs ahead of anticipated Fed rate cut

In a volatile session, US stocks reached new record highs on Tuesday before ending the day little changed as investors braced for the Federal Reserve’s interest rate decision on Wednesday.

The S&P 500 surged 0.66 per cent to a record high of 5,670.81 before settling at 5,634.58, while the Dow Jones Industrial Average rose 0.51 per cent to an all-time high of 41,835.28 before closing at 41,606.18, down 0.038 per cent. The NYSE Composite also set a record of 19,331.59, finishing the day 0.15 per cent lower.

This rally comes ahead of a major Federal Reserve interest rate cut—the first in four years—which markets have priced in with a 65 per cent probability of a 50 basis-point reduction. Investors are keeping a close watch on the central bank's decision, with expectations divided over the size of the cut.

Economic data released earlier in the day bolstered investor optimism. The Commerce Department's report showed an unexpected rise in retail sales for August, alleviating fears of a potential economic slowdown. A decline in auto dealership receipts was offset by strong growth in online purchases, signaling resilience in consumer spending during the third quarter.

"Expectations for a rate cut were solidified by today’s data," said Russell Price, Chief Economist at Ameriprise Financial Services. "However, there's cautious trading, as tomorrow’s decision could surprise investors."

Technology stocks were among the top performers. Microsoft boosted the S&P 500 after the company announced a $60 billion share buyback program and a 10 per cent hike in its quarterly dividend. Intel also saw gains following news of a collaboration with Amazon's AWS to develop custom AI chips. Shares of Amazon climbed on the same news.

However, despite the gains, markets pared back their advances in afternoon trading as investors took a wait-and-see approach ahead of the Fed’s announcement. Eight of the eleven S&P sectors traded higher, with energy stocks leading the pack, buoyed by rising crude prices, while healthcare lagged.

With the Fed’s interest rate decision looming, investors remain on edge, knowing that tomorrow’s outcome could impact market performance. Historically, September has been a weak month for U.S. equities, and traders are balancing optimism with caution.

Key Movers

• Microsoft (+1.0 per cent) lifted by a new share buyback program and dividend hike.
• Intel (+6.2 per cent) surged after signing a deal with Amazon’s AWS for AI chip development.
• Amazon (+1.7 per cent) gained on news of its partnership with Intel.

Energy was the best-performing of the 11 major S&P sectors, buoyed by a climb in crude prices, while healthcare was the worst-performing. Among other movers, Intel gained after signing Amazon.com's cloud-services unit as a customer to make custom artificial-intelligence chips. Amazon.com shares also advanced.

(With Reuters inputs.)