Nasdaq Rises 1.5% After Fed Cuts Interest Rates

U.S. stocks closed higher Thursday, after the Federal Reserve announced a cut of 25 basis points (bps) in interest rates, extending a sharp rally sparked by Donald Trump's return as U.S. president.

The Fed cut interest rates by a quarter of a percentage point as policymakers took note of a job market that has "generally eased" while inflation continues to move toward the U.S. central bank's 2% target.

Markets had almost fully priced in a 25-basis-point rate cut for the November meeting and will now eye upcoming commentary from the central bank for guidance about the path of monetary policy.

Investor expectations that Trump would lower corporate taxes and loosen regulations sparked a surge in each of the three major indexes in the prior session, with both the Dow Industrials and S&P 500 recording their largest one-day percentage jumps in two years.

"In an action-packed week, the Fed didn’t add any drama. Cutting by 25 basis points still keeps the federal funds rate restrictive, but not as restrictive as it was," said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

"Elections have consequences and we could see a marginal improvement in growth relative to their forecasts, but also a marginal increase in inflation relative to their forecasts. That would call for a more gradual pace of rate reductions."

According to preliminary data, the S&P 500 gained 44.84 points, or 0.76%, to end at 5,973.88 points, while the Nasdaq Composite gained 285.89 points, or 1.51%, to 19,269.46. The Dow Jones Industrial Average fell 2.67 points, or 0.01%, to 43,727.26.

Communications services led S&P sector gains, buoyed by a jump of more than 10% in Warner Bros Discovery after a surprise third-quarter profit.

Financials were the weakest of the 11 major S&P sectors, giving back some of the outsized gains in the prior session, as banks declined after a surge of nearly 11% on Wednesday. JP Morgan and Goldman Sachs shares both fell to weigh on the Dow.

Expectations for continued rate cuts have been dialed back, however, as economic data continues to point to a resilient economy and the potential for higher inflation as a result of likely tariffs and increased government spending under Trump's administration.

Fed Chair Jerome Powell said no decision has been made on what sort of policy action the central bank will take in December but the central bank is "prepared to adjust our assessment of the appropriate pace and destination” for monetary policy amid uncertainty.

Investors are also eying whether Republicans could win control of both houses of Congress, making it easier for Trump's agenda to proceed.

Treasury yields, which have surged in recent weeks, retreated after a sharp rise on Wednesday, as the benchmark 10-year yield eased from a four-month high of 4.479%, before briefly paring declines slightly after the Fed statement before turning lower again.

Data earlier on Thursday showed U.S. weekly jobless claims rose marginally last week, suggesting no material change in labor market conditions.