The Fed rate cut is seen as great news for stocks. This time, it’s different from the summer. Then, big stocks saw a huge drop.
Now, the big tech companies are likely to keep rising. They have been key to the market’s success. This means the stock market could see more growth.
The Magnificent Seven—a group of tech giants—saw their stocks soar. This includes Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla. The Dow also hit a new high.
Meta led the gains, with a 7% increase for the week. But, by Friday, Nvidia and Tesla saw their shares drop. The Magnificent Seven ETF also fell but still gained 3% for the week.
These tech giants helped the market during tough times. They made up half of the S&P 500’s gains last year. A report by Morgan Stanley showed their impact.
Nvidia, despite a recent drop, still drove 30% of the index’s gains. Its stock price rose over 140% in the first half of the year.
A hefty rate cut benefits Big Tech
Investors were excited when the Federal Reserve cut rates for the first time in over four years. They saw it as a win against inflation. But, stocks ended Wednesday in the red. This showed worries that the economy has cooled faster than expected.
Fortune’s Alicia Adamczyk wrote that lower rates often come with economic downturns. Research by Hartford Funds found seven out of 11 rate-cutting periods since 1980 were during recessions.
If the Fed can’t achieve a “soft-landing,” the Magnificent Seven could be a safe choice for investors. These tech giants have strong balance sheets and free cash flows. They can protect against market ups and downs.
“These are names that each one of us use to some capacity every single day of our lives,” Angelo Zino, a senior tech analyst at CFRA Research, told Fortune in July.
Fed chair Jerome Powell said he doesn’t see a high risk of a downturn. He pointed to declining inflation, solid growth, and a strong labor market. Thursday’s rally shows some investors agree, which could be good for stocks.
“Rate-sensitive sectors, in particular, are rejoicing,” Ross Mayfield, an investment strategist at Baird Private Wealth Management, wrote in a piece Friday morning. “Rate-cut expectations have helped utilities and homebuilders to outperform the S&P 500 by over 10% since June 30.”
Lower interest rates also help the big tech companies. They benefit from the increased value of their future earnings. With cheaper borrowing, they can invest more in AI without worrying about costs.
In short, even though a rate cut is good news for everyone, the Magnificent Seven can still stay on top.