This week, global markets reacted to the U.S. Federal Reserve's decision to cut rates for the first time in over four years. The move had a significant impact on various regions, with U.S. stocks reaching new highs, European markets showing mixed results, Japanese equities benefiting from a weaker yen, and Chinese markets rising despite disappointing economic data. Additionally, key markets like South Africa and Turkey also made important monetary policy decisions.
United States
The large-cap indexes moved to record highs as investors celebrated the kickoff to what many expect to be a prolonged Federal Reserve rate-cutting cycle. The rally was also relatively broad, with the smaller-cap indexes outperforming, although they remained below previous peaks—the small-cap Russell 2000 Index, in particular, ended the week roughly 9% below the all-time high it established in November 2021.
The event dominating sentiment during the week appeared to be the Fed’s rate announcement following its policy meeting concluding Wednesday. Over much of the previous week, according to futures markets tracked by the CME FedWatch Tool, opinion had been roughly split as to whether policymakers would cut rates by a quarter point (25 basis points, or 0.25 percentage points) or a half point (50 basis points, or 0.50 percentage points). The initial reaction to the Fed’s decision to “go bigger” and cut rates by 50 basis points—the first cut of any size since March 2020—was relatively muted, with the S&P 500 Index falling slightly to end the day. However, market declines in the wake of the start of a Fed rate-cutting cycle have not been unusual, occurring on two out of five such occasions since the mid-1990s. Indeed, investors’ celebration of the news seemed to begin on Thursday morning, with the Dow Jones Industrial Average, S&P 500 Index, and Nasdaq Composite all surging to new highs.
- Consumers: The week’s economic data arguably had an upbeat overall tone. Retail sales rose 0.1%, more than expected, following an upwardly revised jump of 1.1% in July. Weekly jobless claims showed a downside surprise, and continuing claims fell to their lowest level in three months. Building permits rose 4.9% in August, their biggest monthly gain in a year. However, sales of existing homes unexpectedly fell 2.5% in August.
- Bond Yields: The yield on the benchmark 10-year U.S. Treasury note rose modestly following the Fed’s decision, touching its highest intraday level since September 5. Tax-exempt municipal bond yields fell broadly at the start of the week but rose modestly on Thursday. Spreads in the investment-grade corporate bond market tightened throughout the week, with higher rates spurring demand. The high yield market traded mostly flat before the Fed meeting but strengthened afterward.
Market Indexes Changes
| Index | Friday's Close | Week's Change | % Change YTD |
|---|---|---|---|
| DJIA | 42,063.36 | 669.58 | 11.60% |
| S&P 500 | 5,702.55 | 76.53 | 19.55% |
| Nasdaq Composite | 17,948.32 | 264.34 | 19.56% |
| S&P MidCap 400 | 3,103.32 | 68.98 | 11.57% |
| Russell 2000 | 2,227.89 | 45.40 | 9.91% |
Europe
In local currency terms, the pan-European STOXX Europe 600 Index ended 0.33% lower, as the rally triggered by the U.S. Federal Reserve’s interest rate cut faded and investors grew cautious about the outlook for monetary policy. Major stock indexes advanced, with Italy’s FTSE MIB increasing 0.58%, France’s CAC 40 Index adding 0.47%, and Germany’s DAX eking out a 0.11% gain. The UK’s FTSE 100 Index, however, lost 0.52%.
- BoE Rates: The Bank of England (BoE) held its key policy rate at 5.0%, with the Monetary Policy Committee voting 8–1 in favor of no change. Governor Andrew Bailey stressed the need to be cautious in cutting rates to ensure inflation remains low.
- Norway: Norges Bank left its key interest rate unchanged at 4.5%, as expected. Governor Ida Wolden Bache indicated that monetary policy would likely remain the same through year-end.
- ECB Policy: Hawkish European Central Bank (ECB) policymakers indicated that further easing of monetary policy should be gradual. Hourly wages and salaries in the eurozone grew at an annual rate of 4.5% in the three months through June, down from a revised 5.2% in the first quarter.
Japan
Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 3.1% and the broader TOPIX Index up 2.8%. Midweek, Japanese equities benefited as the yen weakened on the U.S. Federal Reserve’s latest monetary policy decision, which saw the Fed deliver an outsized 50-basis-point reduction in interest rates. On Friday, the Bank of Japan’s (BoJ’s) decision to leave rates unchanged weighed further on the yen. The Japanese currency depreciated to around JPY 143.8 against the U.S. dollar, from about 140.8 at the end of the previous week. The yield on the 10-year Japanese government bond rose to 0.86%, from the prior week’s 0.84%.
- BoJ Rates: At its September 19–20 meeting, the Bank of Japan left its key short-term interest rate unchanged at around 0.25%. The BoJ has raised rates twice in 2024, in March and
