Dow reaches all-time high, Fintechs jump as Fed keeps interest rates the same

The Dow Jones Industrial Average rose 512 points yesterday to a record high of 37,090, while the S&P 500 rose 64 points to close at 4,707, a record high of 4,796. The Nasdaq also rose 1.4% on Wednesday. The catalyst for all three was the Federal Reserve’s decision not to raise interest rates at its third consecutive meeting.

Additionally, markets rose sharply on Thursday morning as comments from Federal Reserve officials appeared to suggest a rate cut was coming.

Federal Reserve expected to cut interest rates three times in 2024

“Recent indicators suggest that growth in economic activity is slowing from the strong pace of the third quarter,” Fed officials said in a statement Wednesday. “Job growth has slowed since the beginning of the year but remains strong and unemployment remains low. “Inflation has eased over the past year but remains on the rise.”

The Federal Open Market Committee (FOMC) decided to maintain the federal funds rate in the range of 5.25-5.5%, saying, “As financial and credit conditions for households and businesses become more stringent, it is likely to put a burden on economic activity, employment, and inflation.” did.

In his remarks after the meeting. Federal Reserve Chairman Jerome Powell acknowledged that interest rates have peaked and are expected to fall next year.

“We believe our policy rates are likely to remain at or near peaks during this tightening cycle, but the economy has surprised forecasters in several ways since the pandemic and continued progress toward the 2% inflation target is not guaranteed. “We are prepared to further strengthen our policies as appropriate,” Powell said.

Additionally, according to the Fed’s Summary of Economic Outlook (SEP), if the economy develops as expected, the federal funds rate is 4.6% by the end of 2024, 3.6% by the end of 2025, and 2.9% by the end of 2026. Most committee members expect three rate cuts in 2024, followed by four in 2025 and four in 2026, according to the SEP, also called the “dotplot.”

Fintech on the move

As previously mentioned, markets rallied on Wednesday due to the Federal Reserve’s actions and comments, with fintechs being the biggest gainers.

One of the best stocks of the day Startup Holdings (NASDAQ:UPST) is a fintech company that uses artificial intelligence to process loan requests. Upstart rose 21% to $42.77 per share on Wednesday and is up a whopping 223% year to date (YTD).

Another fintech that has emerged in the news is SoFi technology (NASDAQ:SOFI) shares rose 12.5% ​​to $8.94 per share. The online banking and financial services company, which also offers a Banking-as-a-Service platform, has seen its stock price soar 94% YTD.

Here are some other big fintech moves on Wednesday: check landlord (NASDAQ:AFRM) is a leading provider of Buy Now, Pay Later (BNPL) services. Affirm shares rose 12.4% on Wednesday to $44.40 per share and are now up a whopping 359% YTD in 2023.

All three stocks got a boost primarily from the good news from the Federal Reserve. That’s because the prospect of low interest rates makes it cheaper for young, growing companies to invest and grow on their own. However, considering that they are also in the financial sector, the direct benefits from interest rate cuts will be greater.

Banks, lenders, investment firms, and consumer finance companies like Upstart, SoFi, and Affirm should all benefit from the economic growth that lower interest rates can bring.

All three swings rose significantly in 2023, but lost a ton of value in 2022 and are still well below recent highs. Additionally, they are all overvalued and have yet to produce consistent returns, so volatility is likely in the coming year. However, there is no doubt that it is a stock worth keeping an eye on.