The Dow Jones Industrial Average surged by 500 points on Tuesday morning, reaching a new record high, as investors are confident that the Federal Reserve will cut a key interest rate by September.
According to 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%. The tool also indicates a 6.7% chance that a half-percentage-point decrease will occur in September. This forecast follows a favorable Consumer Price Index (CPI) report in June, suggesting that inflation is cooling off.
In mid-day trading, the Dow surged by 594 points, or 1.5%, to 40,806. The S&P 500 increased by 0.4%, while the Nasdaq dipped by 0.1%. Investors seemed to favor small-cap stocks, pushing the Russell 2000 to a new 52-week high with a 2% increase.
Conversely, AI stocks were down on Tuesday morning, including Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology, all losing around 2%.
Additionally, Bank of America and Morgan Stanley released their earnings reports. Bank of America’s stock surged by over 4% after surpassing analysts’ forecasts, while Morgan Stanley’s stock increased by just over 1.5%.