Fed Rate Cut Boosts Nasdaq, S&P 500 Futures

Market Reaction to Fed Rate Cut

U.S. stock futures climbed on Thursday following the Federal Reserve’s decision to implement a quarter-point interest rate cut. This move, perceived as part of a "risk management" strategy, suggests that further easing measures could be on the horizon. The SPDR S&P 500 ETF Trust (SPY) and Invesco QQQ Trust ETF (QQQ), which track the S&P 500 and Nasdaq 100 indices respectively, both showed premarket gains. SPY rose 0.84% to $664.72, while QQQ advanced 0.98% to $595.80, according to Benzinga Pro data.

Market sentiment was supported by Fed Chair Jerome Powell's remarks, indicating that the central bank is responding to a cooling labor market and increasing downside risks to employment. Additionally, CME Group’s FedWatch tool shows an 89.8% probability of another rate cut at the Fed's October meeting. Despite this optimism, the S&P 500 and Nasdaq closed mixed on Wednesday, reflecting lingering uncertainties over the pace of rate reductions.

Historical Trends and Expert Insights

Historically, the second year of rate-cutting cycles has been associated with robust stock market performance. Over the past 50 years, the S&P 500 has averaged a 16.4% return during the second year of such cycles, outperforming the first-year average of 9.6%. Analysts attribute this trend to improving liquidity conditions and investor optimism.

However, this positive outlook hinges on the U.S. economy avoiding a recession. Jeff Buchbinder, Chief Equity Strategist at LPL Financial, cautions that while rate cuts are generally beneficial for equities, "the macroeconomic situation is far from assured." He also warns that high valuations could moderate future gains. Risks such as persistent inflation or unexpected economic shocks could derail the S&P 500’s progress.

Key Economic and Corporate Updates

Economic data released this week painted a mixed picture. U.S. housing starts fell 8.5% in August to an annualized rate of 1.307 million units, missing market expectations of 1.37 million. Building permits also declined 3.7%, reflecting a slowdown in the housing sector.

On the corporate front, General Mills reported first-quarter fiscal 2026 earnings that slightly exceeded Wall Street estimates, contributing to a modest stock gain. Conversely, Manchester United saw a 6% drop in share value after reporting mixed fourth-quarter results. These developments highlight the uneven landscape of corporate earnings amid broader market uncertainties.