Stocks on Wall Street soared Thursday a day after the Federal Reserve slashed its benchmark interest rate by 0.50 percentage points, with investors cheering the central bank’s move to head off a slowdown in U.S. economic growth.
The Dow Jones Industrial Averages jumped 479 points, or 1.1%, closing at 42,025. The S&P 500 climbed 95 points, or 1.7%, to close at 5,715. The tech-heavy Nasdaq surged 2.5%.
“Stocks are exploding higher as markets absorb the Fed’s outsized rate cut,” Adam Crisafulli of Vital Knowledge said in a note to investors.
Lower interest rates help financial markets in two big ways. They ease the brakes off the economy by making it cheaper for U.S. households and businesses to borrow money, which can accelerate spending and investment. They also boost prices for riskier assets such as equities, gold and cryptocurrencies.
The half-point move signals that the Fed is acting aggressively to keep the U.S. economy from stalling, given that historically most rate cuts are 0.25 percentage points. The rate cut will provide some relief to U.S. consumers struggling with high borrowing rates impacting credit cards, mortgages and auto loans.