In a sign of the US technology sector's ongoing dominance, the Nasdaq Composite Index (NASDAQ: .IXIC) rocketed to another record high overnight.
After closing up 3.0% on Wednesday following Donald Trump's US presidential election sweep, the Nasdaq closed up 1.5% on Thursday, ending the day at an all-time high of 19,269 points.
The leap into new record turf came after, as widely expected, the US Federal Reserve delivered its second consecutive interest rate cut. Tech stocks tend to react particularly well to lower rates, as many tech companies are priced with future earnings in mind. As rates come down, so too does the present cost of investing in those future earnings.
After cutting by a jumbo-sized 0.50% on 18 September, the Federal Open Market Committee (FOMC) voted unanimously to cut the official US rate by another 0.25%. This brings the Fed's target range to 4.5%–4.75%.
Following the overnight gains, the Nasdaq is now up 41.3% since this time last year, with investor exuberance continuing to be fuelled by the growth potential offered by the ongoing artificial intelligence revolution.
Among the tech giants making sizeable moves higher on the Fed's call:
- The Alphabet Inc Class A (NASDAQ: GOOGL) share price, or Google to you and me, closed up 2.4%
- Tesla Inc (NASDAQ: TSLA) shares closed up 2.9%
- Apple Inc (NASDAQ: AAPL) shares gained 2.1%
- Nvidia Corporation (NASDAQ: NVDA) shares gained 2.3%
Aussie investors who prefer to stick with ASX shares can ride along with the roaring US tech market with the Betashares NASDAQ 100 ETF (ASX: NDQ). This exchange-traded fund (ETF) is intended to track the Nasdaq-100 (INDEXNASDAQ: NDX). The ASX-listed ETF is up 30% in 12 months.
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Why did the US Fed cut interest rates and send the Nasdaq soaring?
The Fed had been widely anticipated to deliver another interest rate cut this month. However, considering some of the amended language and with Trump's policies potentially rekindling inflation, the pace of future cuts may be slower than markets have been pricing in.
As for the overnight rate cut that helped push the Nasdaq to a new record, the FOMC noted that inflation was continuing to fall towards its 2% target, while the US labour market had "generally eased" though unemployment in the world's top economy "remains low".
As Bloomberg noted, the Fed cited that inflation "has made progress toward the committee's 2% objective but remains somewhat elevated". However, the statement removed the reference to "further" inflation progress. It also omitted the previous comment that the central bank has "gained greater confidence" that inflation was moving sustainably toward its target range.
Commenting on the rate cut that saw investors send the Nasdaq to new highs, Fed chair Jerome Powell said:
This further recalibration of our policy stance will help maintain the strength of the economy and the labour market and will continue to enable further progress on inflation as we move toward a more neutral stance over time.
What are the experts saying?
Bret Kenwell, US investment analyst at eToro, had this to say about the overnight rate cut that saw investors piling into Nasdaq stocks (quoted by Bloomberg):
Powell & Co. reminded investors about the solid economic footing the US continues to stand on. Powell would not tip his hand on whether the Fed would likely cut rates in December, which shouldn't surprise investors.
However, the Fed appears more comfortable with the labour market and the current US economic backdrop than they did a few months ago.
Bank of America Corp's Aditya Bhave added:
We thought Powell's comments were generally dovish, and he gave several indications that a December cut remains his base case. Given that the policy mix will not change for a while, we remain comfortable with our call for another 25bp cut in December.
Reaching back another year, the Nasdaq is now up 84% since 4 November 2022.
