Stocks shine, Treasury yields rise as rate cut stokes risk appetite

By Isla Binnie

NEW YORK (Reuters) -Wall Street indexes marched past previous record highs after global counterparts booked gains and longer-dated Treasury yields rose on Thursday as the start of the Federal Reserve's first interest rate cutting cycle in more than four years whet investors' risk appetite.  

With a larger-than-usual move on Wednesday, the U.S. central bank turned the page on more than a year in which borrowing costs were kept at their highest for decades to try to temper inflation.

Fed Chair Jerome Powell said he did not see elevated risks of a slowdown, and policymakers projected the benchmark rate would fall again, reflected in a closely-watched tool known as a dot plot.

"The jumbo cut appears to have raised the perceived likelihood of a soft landing," said Jonathan Cohn, Head of U.S. Rates Desk Strategy at Nomura, referring to economists' ideal scenario where inflation cools without triggering a recession.

This was "supporting a sharp rally in risk assets, even as Powell's rhetoric and the dot plot pushed back on the prospect of additional 50bp cuts," Cohn said adding: "the market will continue to acclimate to the Fed's mixed messaging through tomorrow's light calendar."

Megacap tech stocks including Microsoft (NASDAQ:MSFT ) and Apple (NASDAQ:AAPL ) gained on Wall Street. Smaller companies, which might be expected to enjoy reduced operating costs and cheaper debt in a lower rates environment, also felt the benefit. 

The tech-heavy Nasdaq Composite climbed 2.78%, to 18,061.59.

The blue-chip Dow Jones Industrial average rose 1.38%, to 42,076.78 and the benchmark S&P 500 rose 1.89%, to 5,724.42. Both hit intraday record highs.

The Russell 2000 small-cap index rose as much as 2%.

Gains were not limited to Wall Street. MSCI's 47-country world stocks index gained 1.78%, to 840.96.

Jobless claims for the week ended Sept. 14 came in lower than the market expected, with data showing the number of Americans filing new applications for unemployment benefits dropped to a four-month low.

This contributed to a sell-off in U.S. government debt that pushed up yields. [US/]

The benchmark 10-year Treasury yield hit its highest level in about two weeks at 3.768% and was last up 3.738%, from 3.687% late on Wednesday.

Shorter-dated debt yields felt pressure after another data report showed existing home sales fell to their lowest level since 2023. The 2-year note yield, fell 0.3 basis points to 3.6002%, from 3.603% late on Wednesday.

CURRENCIES, COMMODITIES

In currency markets, the dollar edged lower in choppy trading. The dollar index , which measures the greenback against a basket of currencies including the yen and the euro, fell 0.43% to 100.59. [FRX/] 

The Bank of England's decision to leave interest rates unchanged did not dampen market spirits in Europe, with the STOXX 600 index last up more than 1%. Sterling strengthened 0.57% to $1.3285.

The bonanza week for interest rate decisions continues on Friday with the Bank of Japan. It is not expected to make a move now, but may buck the global trend and line up another rate hike for as soon as October.

The Japanese yen weakened 0.24% against the greenback to 142.63 per dollar in afternoon trading.

Gold rose 1.14% to $2,588.06 an ounce.

Oil prices rose, backed by the view that lower rates equal stronger demand. [O/R]



Benchmark Brent crude futures climbed back above $74 a barrel for the first time in more than a week, and settled at $74.88, 1.67% higher on the day. U.S. crude settled 1.47% higher, at $71.95 a barrel.

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Source: Investing.com