The Markets
 
The Standard & Poor’s (S&P) 500 Index hit a new all-time high last week.
 
The S&P 500 has had quite a year. Despite a sharp downturn in August when investor confidence was ruffled by concerns about economic growth, the Index was up about 20 percent, year-to-date, at the end of last week. The gains were widespread with all sectors of the Index participating, according to data from Fidelity.
 
Last week, investor enthusiasm was bubbling up. There were a lot of reasons for their optimism. First, investors were encouraged by the Federal Reserve’s rate reduction earlier this month and expectations that the Fed will continue to reduce the federal funds rate further to support economic growth. Jacob Sonenshine of Barron’s explained the advantages conferred by the Fed’s actions:
 
“Lower rates would only boost consumer spending on housing and other goods and services—a demand picture that will spur investment from companies, helping the industrial economy specifically. This all means companies’ profit growth could easily extend from next year into 2026. Analysts expect S&P 500 companies, in aggregate, to generate annual sales growth just above 5 [percent] over the coming two years, according to FactSet.”
 
Second, a round of positive economic news helped investors set aside any lingering concerns about economic growth. Brian Evans and Lisa Kailai Han of CNBC reported:
 
“A slate of fresh data supported a solid economy, easing fears that perhaps the Federal Reserve is cutting rates aggressively because of a potential slowdown. Weekly jobless claims fell more than expected, pointing to a steady labor market. Durable goods orders for August were unchanged versus economists’ expectations for a decline. Further, the final reading of second-quarter Gross Domestic Product (GDP) was unrevised at a strong 3 [percent].”
 
In addition, inflation continued to trend lower in August. The Fed’s favored inflation gauge, the personal consumption expenditures index, indicated prices rose 0.1 percent. Megan Leonhardt of Barron’s reported:
 
“The August pace [of inflation] was also lower than consensus calls…The latest data show that the annualized three-month core Personal Consumption Expenditures (PCE) is currently running below the Fed’s 2 [percent] inflation target. It should help erase any doubts that the Federal Open Market Committee made the right call when it slashed benchmark interest rates by a half percentage point earlier this month.”
 
Last week, the S&P hit a new all-time high, as well as a record close. The Dow Jones Industrial Average and Nasdaq Composite Index also rose last week. After rising earlier in the week, yields on many maturities of U.S. Treasuries moved lower on Friday after inflation news shored up expectations for further Fed rate cuts. 

The Markets
 
Rates moved lower and stocks moved higher.
 
In 2022, the United States Federal Reserve (Fed) began raising interest rates as it battled high rates of inflation. That year prices rose 8 percent, as measured by the Consumer Price Index. In 2023, prices increased more slowly (4.1 percent), but still advanced at a pace that was well above the Fed’s target of two percent. Last month, prices rose 2.5 percent annualized. And last week, the Fed decided it is time to change course.
 
“On Wednesday, policymakers indicated their rate cut would likely be the first of several through the end of next year. The median forecast among members of the Federal Open Market Committee was that the benchmark federal-funds rate will be at 3.4 [percent] by the end of 2025, compared with the current targeted range of 4.75 [percent] to 5 [percent],” reported Elizabeth O’Brien and Shaina Mishkin of Barron’s. “This marks a significant shift. The Fed has moved from a phase when it kept rates high to combat inflation to one where it is lowering them to support the labor market and the broad economy.”
 
As borrowing costs move lower, other interest rates are likely to follow. As a result, consumers, investors, and business owners may have opportunities to:

• Pay lower interest rates on auto and home loans,
• Refinance mortgages at lower rates, and
• Tap into home equity at a lower cost.

 
Major U.S. stock indices rose on Thursday, following the Fed’s rate cut. “The S&P 500 climbed 1.7 [percent]—notching its 39th record in 2024 and extending this year’s surge to about 20 [percent],” reported Rita Nazareth of Bloomberg. “The Fed’s bold start to cutting interest rates and its determination not to fall behind the curve re-ignited hopes the central bank will be able to avoid a recession. Data Thursday showing a slide in jobless claims to the lowest since May signaled the labor market remains healthy despite a slowdown in hiring.”
 
Stocks gave back some gains on Friday but finished week higher. Yields on U.S. Treasuries were mixed over the week.