Wall Street Sees Gains Following Federal Reserve's Interest Rate Cut

A team of traders were seen working on the floor of the New York Stock Exchange on November 7, as they watched Federal Reserve Chair Jerome Powell's news conference displayed on a screen.

On Thursday, most U.S. stocks experienced a rise after the Federal Reserve decided to cut interest rates once again to support the economy.

The S&P 500 index increased by 0.7 percent, building on its gains from the previous day after Donald Trump's presidential election victory. Meanwhile, the Dow Jones Industrial Average remained mostly unchanged, dipping slightly by less than a point, and the Nasdaq composite jumped by 1.5 percent.

The Fed's announcement of the interest rate cut did not cause significant market shifts, as the cut was widely expected by investors. The central bank had begun reducing rates in September, signaling that additional cuts would likely occur. The focus remains on keeping the job market strong, especially after successfully bringing inflation close to the 2 percent target. However, investors are now uncertain about how Trump's policies might affect the Fed's future decisions.

Trump's proposed tariffs and other policies could potentially raise inflation and affect economic growth. As a result, traders have started to lower their expectations for the number of rate cuts the Fed might implement next year. While lower rates generally stimulate economic growth, they can also contribute to rising inflation.

For the time being, Fed Chair Jerome Powell stated that there would be no immediate changes to interest rate policies due to the election. Powell clarified that the Fed evaluates potential policy changes from any president and assesses how those changes could impact the economy. Only after analyzing the overall effects do the Fed officials determine their interest rate strategies. Currently, the details of Trump's policies remain unclear.

Wall Street saw notable contributions from certain companies, with healthcare provider McKesson surging 10.6 percent after reporting stronger-than-expected quarterly profits. Lyft also had an impressive day, rising 22.8 percent after exceeding Wall Street's sales and profit expectations, while Ralph Lauren climbed 6.6 percent, benefiting from sales growth in Asia and Europe.

These gains somewhat offset the declines seen in bank stocks, which pulled back from significant gains the previous day. Other stocks associated with the “Trump trades,” which rallied after his election, also showed weaknesses.

For instance, shares of JPMorgan Chase dropped 4.3 percent, contributing to the Dow Jones Industrial Average's slight decrease after an optimistic market day where banks benefitted from expectations of a stronger economy and fewer regulations leading to higher profits.

The smaller U.S. stocks trailed the overall market, with the Russell 2000 index declining by 0.4 percent. This was in contrast to the previous day, when the small-cap index had more than doubled the S&P 500's gains amid expectations that Trump's America-First policies would greatly benefit smaller companies.

In the bond market, the yield on the 10-year Treasury note fell to 4.33 percent from 4.44 percent the day before, as it retreated from a surge resulting from positive growth expectations and potential inflation stemming from Trump's proposals.

Latest reports indicated a slight uptick in U.S. unemployment claims, though numbers remain relatively low. Other data showed improvements in worker productivity during the summer, which can help control inflation.

Internationally, the stock markets saw mixed reactions, with London's FTSE 100 declining by 0.3 percent after the Bank of England reduced its own interest rate. Japan’s Nikkei 225 also decreased by 0.3 percent, reflecting concerns over possible trade tensions under Trump's leadership.

“There are definitely concerns regarding Trump's tariffs as that is a key aspect of his agenda. We will have to closely monitor the early developments of his presidency,” commented Neil Newman, head of strategy for Astris Advisory Japan.

In contrast, stocks gained in Hong Kong and Shanghai, with increases of 2 percent and 2.6 percent, respectively, following reports that China's exports surged in October at the most rapid pace seen in over two years.

Trump has signaled intentions to impose substantial tariffs on all Chinese imports, threatening to raise them if China makes military actions towards Taiwan, which adds further pressure to China's economy already facing growth challenges.

However, analysts expect that the actual impact of these tariffs might be less severe than anticipated, with reports suggesting that strong shipments will continue in the months ahead, and any significant impact from Trump's policies may not be felt until later next year.

WallStreet, Interest, Trump