Dow Jones jumps 500 points, S&P 500 hits record highs, closing above 5,700 after US Fed rate cuts

The Dow Jones Industrial Average, composed of 30 major stocks, surged over 500 points, surpassing the 42,000 mark for the first time.

Meanwhile, the S&P 500 climbed 1.7 percent, closing above 5,700 for the first time in its history.

Tech stocks led the rally, with companies like Nvidia, AMD, Meta, and Alphabet pushing the Nasdaq index beyond 18,000, gaining over 2.5 percent on Thursday.

Investors felt reassured that the Fed's efforts aimed at a "soft landing" for the economy were taking hold. Weekly jobless claims, reported on Thursday, dropped by 12,000 to 219,000—significantly lower than anticipated.

Other key players, such as JPMorgan Chase, Caterpillar, and Home Depot, also saw gains.

Despite a calm trading environment, market participants braced for the "triple witching" event, where futures and options on stocks and indexes expire simultaneously, which could increase volatility.

An estimated $5.1 trillion in contracts are set to expire on Friday, according to Asym 500, coinciding with index rebalancing.

Historically, equities have responded positively to falling interest rates over the following year, as long as a recession is avoided, according to Keith Lerner of Truist Advisory Services.

Of the six rate-cutting cycles since 1989, stocks have risen a year later in four instances.

In the aftermath of a rate cut, large-cap stocks in the US have generally outperformed small-cap stocks in four of the last six occasions.

Interestingly, small caps performed better during the recessions of 2001 and 2008.

On a forward price-to-sales basis, the Russell 2000 index is trading at its largest discount to the S&P 500 in more than two decades.