The Dow Jones Industrial Average surged 750 points on Tuesday, setting a new record high as investors grew confident that the Federal Reserve will cut a key interest rate by September.
According to the CME FedWatch tool from CME Group, which tracks the actions of the Federal Open Markets Committee (FOMC), there is a 93.3% chance that the Fed will reduce 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% probability that the Fed might make a half-percentage-point cut in September. Some traders believe the Fed will announce the cut at its meeting at the end of July and then again in September. These likelihoods were bolstered by June’s favorable CPI report, which suggested that inflation is cooling off.
The Dow closed the day up 742 points, or 1.85%, at 40,954. The S&P 500 gained 0.64%, and the Nasdaq increased by 0.2%. Investors favored small-cap stocks, boosting the Russell 2000 to a new 52-week high with a 3.4% jump.
However, AI stocks saw losses on Tuesday morning. Companies such as Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology all experienced declines of around 2%.
Additionally, Bank of America and Morgan Stanley released their earnings reports. Bank of America’s stock soared over 5% after exceeding analysts’ expectations, while Morgan Stanley’s stock rose just over 1%. In contrast, shares of Charles Schwab dropped more than 10% following a decrease in bank deposits reported by the largest publicly traded U.S. brokerage.