The Dow Jones Industrial Average closed 750 points higher on Tuesday, hitting a new record high, as investors are confident that the Federal Reserve will reduce a key interest rate by September.
According to the CME FedWatch tool, which evaluates potential actions of the Federal Open Markets Committee (FOMC), there is a 93.3% probability that the Fed will decrease 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%.
There is also a 6.7% chance of a half-percentage-point cut in September, reflecting some traders’ belief that the Fed might announce a cut at its meeting in late July followed by another cut in September. These probabilities emerged after a favorable CPI report in June showed that inflation is easing.
At the close of the day, the Dow had risen by 742 points, or 1.85%, to 40,954. The S&P 500 increased by 0.64%, and the Nasdaq saw a 0.2% gain. Small-cap stocks saw substantial gains, with the Russell 2000 reaching a new 52-week high after a 3.4% rise.
However, AI stocks were down on Tuesday morning. Companies such as Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology all experienced losses of about 2%.
In addition, Bank of America and Morgan Stanley released their earnings reports. Bank of America’s stock jumped over 5% after exceeding analysts’ forecasts, while Morgan Stanley’s stock rose by just over 1%. Conversely, shares of Charles Schwab fell more than 10% following a reported decrease in bank deposits.