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The Dow Jones Industrial Average closed the day 750 points up on Tuesday, reaching a new record high, as investors are now certain that the Federal Reserve will cut a key interest rate by September.
As per CME FedWatch, a tool created by CME Group that analyzes the actions of the Federal Open Markets Committee (FOMC), there is a 93.3% probability that the Fed will lower its key rate by a quarter percentage point to a range of 5% to 5.25% in September, down from the current range of 5.25% to 5.5%.
According to the tool, there is a 6.7% chance that a half-percentage-point decrease will come in September. This takes into account the belief held by some traders that the Fed will announce the cut at its meeting at the end of July and then again in September. The probability numbers came after the favorable CPI report in June which indicated that inflation is cooling off.
As the day ended, the Dow was up by 742 points, or 1.85%, to 40,954. The S&P 500 jumped 0.64%, while the Nasdaq popped 0.2%. The investors put their bets on small-cap stocks, pushing the Russell 2000 to a new 52-week high with a 3.4% jump.
Meanwhile, AI stocks were down Tuesday morning, including Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology, all losing around 2%.
Moreover, Bank of America and Morgan Stanley have released their earnings reports. Bank of America’s stock surged by over 5% after earnings surpassed analysts’ forecasts, while Morgan Stanley’s stock increased by just over 1%. Shares of Charles Schwab fell more than 10% following a decrease in bank deposits as reported by the largest publicly traded U.S. brokerage.