Market reaction to Fed's STRONG 0.5% cut. What is ahead and what rate cuts mean

There's a lot to unpack after the Fed made a “strong” 0.5% rate cut. It will echo through global markets, as will the Fed' slower economic growth and higher unemployment estimates (see below*). While investors will weigh up how much the Fed's further ~2% of rate cuts coming down the line could support global markets and asset prices. There's a lot to assess over the coming weeks and months. But it's fair to say ‘sell the news’ initially took effect after the Fed decision. Before the Fed meeting, the S&P 500 $S&P 500 Index (.SPX.US)$ rose 1%, and commodities were higher too, but gains turned to losses, and the S&P 500 closed 0.3% lower after the Fed's announcement. So, how much ‘sell the news’ will take effect and how much steam could come out of markets that have run up hard and fast in anticipation of this? That's the question, and time will tell.

The good news is US futures markets and after-hours US trade suggests that perhaps traders and investors are liking the Fed's bold cut and the runway of potential cuts, with big tech stocks such as Nvidia $NVIDIA (NVDA.US)$ +1%, Microsoft $Microsoft (MSFT.US)$ and Amazong $Amazon (AMZN.US)$ up about 1%, with $Advanced Micro Devices (AMD.US)$ following, while the Bitcoin proxy and largest corporate holder of BTC, MicroStrategy $MicroStrategy (MSTR.US)$ , trades up 2.3% in after hours trade.

So, it seems markets could be coming around to the long-term narrative that the Fed rate cuts, and the central bank embarking on a rate cut cycle, which is broadly in line with estimates, is a positive for stocks. Rate cuts are a boon in supporting asset prices, risk assets and sectors, company profits, and markets over the longer term (*for more see below*). However ,as we unpacked in our webinar, markets do tend to rise 12 months after a Fed rate cut cycle begins, but it has not always been the case.

The Australian share market punched to a brand-new record all-time high of 8,187, with 191 of the ASX 200 stocks trading in the black. BHP $BHP Group Ltd (BHP.AU)$ is up the most in the heavyweights, rising 1.4% and gaining US$6 billion in two weeks in anticipation of the Fed's easing cycle supporting its company profits turnaround. While today's iron ore data showed Australia's exports are growing perhaps quicker than expected, the market has a double whammy of positive tailwinds for Australia's mining giants. It seems many suspect the commodity price lows could be behind us. But again, time will tell.

All in all, what's supporting the ASX 200 in early trade is that market estimates for broad ASX 200 earnings have improved, with the market now seeing ASX 200 $S&P/ASX 200 (.XJO.AU)$ earnings growing a little quicker in light of the Fed's rate-cutting cycle. That said, for moves to gain another tick, we await the RBA's commentary next Tuesday after their rate cut decision.