Wall Street closed out its best week of the year, with interest rates expected to drop after the Federal Reserve meets next week.
The three major stock market indexes, which measure how stocks perform, all rose on Friday. The S&P 500 increased 0.5 percent, just 0.7 percent below its record high in July. Meanwhile, the Dow Jones Industrial Average rose 0.7 percent and at one point got within 30 points of the all-time high it reached in August. The Nasdaq composite was up 0.7 percent.
On a weekly basis, the S&P 500 rose 4 percent and the Nasdaq gained 5.9 percent, the best week of 2024 for both indexes. The Dow was up 2.6 percent for the week.
Wall Street’s successful week came after stocks dropped last week, its worst in nearly 18 months. Last Friday, the S&P 500 decreased 1.7 percent, closing out its worst week since March 2023. The Dow dropped 1 percent, and the Nasdaq composite was down by 2.6 percent.
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Friday’s bump in the stock market comes ahead of the Federal Reserve’s meeting on Wednesday, when the central bank is expected to cut its benchmark rate. The Fed raised the rate 11 times in 2022 and 2023 to curb high inflation, which hit both the U.S. and countries around the world after the COVID-19 pandemic. Next week’s expected rate cut would be the first in over four years.
The Fed’s benchmark rate, known as the federal funds rate, is the target interest rate at which commercial banks borrow and lend their extra reserves to one another overnight. The cost of consumer borrowing, including for mortgages, auto loans and credit cards, should go down over time with a series of Fed cuts.
When the Fed cuts rates, stocks typically increase because the borrowing costs for public companies should fall, making it cheaper for those companies to increase their earnings.
The federal funds rate is currently in a range of 5.25 to 5.50 percent. It’s not known if the Fed will deliver a modest quarter-point cut or a larger half-point cut. Data from the financial services company CME Group, cited by the Associated Press, found that traders on Friday were seeing roughly a 50/50 chance that the Fed would cut its benchmark rate by half a percentage point.
“Right now, the equity market is keying off the toss-up” in the size of the Fed’s expected rates cut next week “and would probably be fine with either,” Sameer Samana, senior global market strategist at Wells Fargo Investment Institute, told the AP.
He said that “they care more about direction than magnitude, and rates falling should take pressure” off companies’ expenses and stock prices.
This article includes reporting from the Associated Press.
