S&P 500, Nasdaq rise on chip sector rally, Fed signals of upcoming rate cut

By Chibuike Oguh

NEW YORK (Reuters) -The S&P 500 and Nasdaq finished higher on Wednesday as chip stocks rallied and the Federal Reserve left U.S. interest rates unchanged but indicated it could begin easing monetary policy in September if inflation cools.

The Fed kept its benchmark overnight interest rate in the 5.25%-5.50% range as it ended its two-day policymaking meeting on Wednesday, but opened the door to easing in September, seven weeks shy of the November U.S. elections.

According to preliminary data, the S&P 500 gained 85.84 points, or 1.58%, to end at 5,522.28 points, while the Nasdaq Composite gained 451.98 points, or 2.64%, to 17,599.40. The Dow Jones Industrial Average rose 99.73 points, or 0.24%, to 40,843.06.

"It was the worst kept secret on the planet that the Fed was not going to cut in July," said Jake Dollarhide, chief executive of Longbow Asset Management in Tulsa, Oklahoma. "The Fed is going to have its day in the sun in September with a 25 or 50 basis point cut, but I would not be surprised if that is already priced into stocks."

During his press conference, Fed Chair Jerome Powell said policymakers discussed the case for cutting rates, but a "strong majority" agreed that now was not the appropriate time.

"The statement didn't move the needle at all," said Mark Malek, chief investment officer at Siebert Next in New York, referring to the Fed's official statement. "But listening to him speak, it's clear they're all locked and loaded for September rate cut and they're going to maintain their optionality."

Data released early Wednesday showed July U.S. private payrolls increased far less than expected, indicating an easing in persistent labor market tightness.

Nvidia jumped, helped by a rosy 2024 sales forecast for artificial intelligence chips by peer Advanced Micro Devices, whose shares also gained.

Microsoft dipped after it reported massive AI-related expenses. Meta jumped ahead of its results. Apple and Amazon.com, which will report earnings on Thursday, gained as well.

(Reporting by Chibuike Oguh in New York; Additional reporting by Noel Randewich in Oakland, California; Editing by Richard Chang)