The Dow Jones Industrial Average surged by 750 points on Tuesday, marking a new record high as investors grow confident that the Federal Reserve will lower a key interest rate by September.
According to the CME FedWatch tool from CME Group, which analyzes the actions of the Federal Open Markets Committee (FOMC), there is a 93.3% likelihood 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%.
The tool also indicates a 6.7% chance of a half-percentage-point cut in September. Some traders believe these cuts could be announced at the Fed’s meeting at the end of July and then again in September. This sentiment follows the release of a favorable Consumer Price Index (CPI) report in June, which showed signs of cooling inflation.
By the close of trading, the Dow gained 742 points, or 1.85%, to reach 40,954. The S&P 500 rose by 0.64%, while the Nasdaq increased by 0.2%. Investors showed strong interest in small-cap stocks, pushing the Russell 2000 to a new 52-week high with a 3.4% increase.
On the downside, AI stocks such as Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology fell by around 2% in Tuesday morning trading.
In corporate earnings, Bank of America and Morgan Stanley both released their reports. Bank of America’s stock jumped over 5% after reporting earnings that exceeded analysts’ expectations, while Morgan Stanley’s stock rose slightly over 1%. However, shares of Charles Schwab plummeted by more than 10% due to a reported decrease in bank deposits by the largest publicly traded U.S. brokerage.