Stocks surge a day after Federal Reserve's first interest rate cut since 2020

Stocks on Wall Street soared Thursday a day after the Federal Reserve slashed its benchmark interest rate by 0.50 percentage points, with investors cheering the central bank's move to head off a slowdown in U.S. economic growth.  

The Dow Jones Industrial Averages jumped 479 points, or 1.1%, closing at 42,025. The S&P 500 climbed 95 points, or 1.7%, to close at 5,715. The tech-heavy Nasdaq surged 2.5%.

"Stocks are exploding higher as markets absorb the Fed's outsized rate cut," Adam Crisafulli of Vital Knowledge said in a note to investors.

Lower interest rates help financial markets in two big ways. They ease the brakes off the economy by making it cheaper for U.S. households and businesses to borrow money, which can accelerate spending and investment. They also boost prices for riskier assets such as equities, gold and cryptocurrencies.

The half-point move signals that the Fed is acting aggressively to keep the U.S. economy from stalling, given that historically most rate cuts are 0.25 percentage points. The rate cut will provide some relief to U.S. consumers struggling with high borrowing rates impacting credit cards, mortgages and auto loans.

Stocks rose modestly immediately after the Fed's announcement that it was lowering rates for the first time since March 2020. But with a day to digest the move, which included new data from the central bank forecasting solid economic growth in 2025, investors seemed buoyed in morning trade.

"I don't see anything in the economy right now that suggests that the likelihood of a downturn is elevated — you see growth at a solid rate, you see inflation coming down and a labor market that is still at very solid levels," Fed Chair Jerome Powell said in a press conference on Wednesday to discuss the rate cut. 

—The Associated Press contributed to this report.