Stocks Race To Best Day In 5 Months As Lower Interest Rate Prospects Jolt Markets

Forbes Business Breaking Stocks Race To Best Day In 5 Months As Lower Interest Rate Prospects Jolt Markets Derek Saul Forbes Staff Derek Saul has covered markets for the Forbes news team since 2021. Following Jul 31, 2024, 03:48pm EDT Updated Jul 31, 2024, 04:15pm EDT Share to Facebook Share to Twitter Share to Linkedin
Stocks Race To Best Day In 5 Months As Lower Interest Rate Prospects Jolt Markets

Stocks Race To Best Day In 5 Months As Lower Interest Rate Prospects Jolt Markets

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Updated Jul 31, 2024, 04:15pm EDT

Topline

Renewed optimism for battered semiconductor chip stocks, coupled with a friendlier Federal Reserve giving its biggest indication yet lower interest rates are on the horizon, sent stocks surging Wednesday.

Key Facts

The S&P 500 rose 1.6%, its best day since Feb. 22 and second-best day of the year, and the tech-concentrated Nasdaq jumped 2.6%, also tallying its best day since Feb. 22 (the less tech-leaning Dow Jones Industrial Average rose a modest 0.3%).

Leading the surge were chip stocks, as the iShares Semiconductor exchange-traded fund (SOXX) rose more than 6%, its steepest gain since November 2023.

Headlining gains were sector leaders Nvidia and Broadcom’s 13% and 12% respective stock rallies.

Driving the chip boom were strong earnings for Advanced Micro Devices—above Wall Street expectations—and a boost from top customer Microsoft, indicating it expects to spend even more on artificial intelligence technology to meet surging demand.

Surprising Fact

Nvidia’s $329 billion in market capitalization added Wednesday is the single-largest value gained in a day ever, according to Bloomberg.

Key Background

Tech stocks historically perform better during lower-rate environments due to the high-growth companies’ need for new capital, and the Fed gave a strong indication Wednesday it’s on the cusp of lowering rates. Fed Chairman Jerome Powell told reporters the first rate cut is “on the table” at the Fed’s next meeting, in September, adding more broadly that lower rates are “approaching.” Remarkably, tech stocks have been resilient during the high-rate cycle which began two years ago, with the Nasdaq up 30% since the Fed first raised rates in March 2022. That’s largely due to the intense investor interest in generative artificial intelligence, with Nvidia’s more than 400% gain since the first rate hike leading the way.

Surprising Fact

Even after Wednesday’s runup, tech stocks are still down in July, with the Nasdaq down 0.4%, the SOXX down 5%, Nvidia down 5%, and AMD down 11%, as investors cashed in on the last two years’ strong gains and rotated into previously neglected small-cap stocks.

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