The Dow Jones Industrial Average jumped on Wednesday after the Federal Reserve decided to cut interest rates once again this year and as traders bet more easing was ahead next year.
The 30-stock average gained 497.46 pointsor 1.1%to close at 48,057.75. The S&P 500 advanced 0.7% to end the day at 6,886.68 and briefly traded above its previous record closing high of 6,890.89. The Nasdaq Composite increased 0.3% to 23,654.16.
The Fed approved another quarter percentage point cut at the conclusion of its two-day policy meeting. The cutwhich marks its third in a rowbrings the federal funds rate to a range of 3.5%-3.75%.
There were a number of items Wall Street saw as bullish for equity markets in the Fed's messagingas well as in Chair Jerome Powell's subsequent remarks:
- Notablythe Fed announced it start buying short-term bondsexpanding its balance sheet. Short-term Treasury yields moved lower as a result.
- The central bank also gave attention to the weak labor market in its statementremoving language that it "remained low." This suggests its focus is turning to supporting the economy and away from inflation.
- While Powell said the Fed would have to "wait and see" before making its next movehe also virtually ruled out any chance for a rate hike next. "I don't think that a rate hike ... is anybody's base case at this point," he said.
On the flip sidethe Fed forecasts only one rate cut in 2026but traders bet they would go further. In factthe CME Fedwatch tool showed fed funds futures are pricing in a more than 77% chance that the central bank would slash rates two more times next year.
"A lack of deeper reductions could have been interpreted poorly by Wall Streetbut news that the balance sheet will begin expanding againalbeit slowlyis certainly a reason to get excited and more than offset the concerns of limited benchmark trims ahead," said José Torressenior economist at Interactive Brokers. "Furthermorethe dots featured stronger growth forecastslighter inflation anticipations and neutral employment expectationsdevelopments that are also supporting a bullish reaction in stocks and yields alike."
On October 29the day after the last record close for the S&P 500the Fed cut ratesbut Powell signaled that another reduction was not certain for December. That sent stocks lower that day and started a rough patch for equities through most of November until some Fed members began to signal a December cut may be in order.
The benchmark has since made a round trip back.
"The last interest rate decision of 2025 has essentially paved the way for a Santa Claus rally to end the year and the S&P 500 is poised to exceed the 7,000 milestone in the next few weeks," Torres said.