The Dow Jones Industrial Average soared by 750 points on Tuesday, reaching a new record high as investors gained confidence that the Federal Reserve will cut a key interest rate by September.
According to CME FedWatch, a tool developed 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%. Additionally, there is a 6.7% chance of a half-percentage-point decrease in September. This forecast reflects traders’ belief that the Fed could announce a cut at its July meeting and again in September. These probabilities emerged after a favorable CPI report in June indicated that inflation is easing.
At the close of the day, 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%. Small-cap stocks saw significant interest from investors, driving the Russell 2000 to a new 52-week high with a 3.4% increase.
Conversely, AI stocks suffered declines on Tuesday morning, with Nvidia, Advanced Micro Devices, Super Micro Computer, Broadcom, and Micron Technology each dropping around 2%.
In other corporate news, Bank of America and Morgan Stanley released their earnings reports. Bank of America’s stock surged by over 5% after exceeding analysts’ expectations, while Morgan Stanley’s stock increased by just over 1%. Shares of Charles Schwab fell more than 10% following a reported decrease in bank deposits by the largest publicly traded U.S. brokerage.