The Dow Jones Industrial Average surged by 750 points on Tuesday, hitting a new record high, as investors gained confidence that the Federal Reserve will cut a key interest rate by September.
According to the CME FedWatch tool, which 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 of a half-percentage-point decrease in September. This reflects some traders’ belief that the Fed will announce the rate cut at its meeting at the end of July and again in September. These probability figures followed a favorable CPI report in June, indicating that inflation is cooling off.
By the end of the day, the Dow had risen by 742 points, or 1.85%, to close at 40,954. The S&P 500 increased by 0.64%, while the Nasdaq gained 0.2%. Investors favored small-cap stocks, pushing the Russell 2000 to a new 52-week high with a 3.4% jump.
Meanwhile, AI stocks were down on Tuesday morning, including Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology, all declining by around 2%.
Additionally, Bank of America and Morgan Stanley released their earnings reports. Bank of America’s stock surged by over 5% after surpassing analysts’ forecasts, while Morgan Stanley’s stock rose by just over 1%. However, shares of Charles Schwab fell more than 10% following a reported decrease in bank deposits by the largest publicly traded U.S. brokerage.