By Ryan Dezember – Wall Street Journal

The Federal Reserve’s big rate cut sparked a furious global rally in stocks as traders bid up technology shares and other risky assets in a bet that lower borrowing costs will help keep unemployment low without reigniting inflation.

The rally was a delayed yet emphatic response to the central bank’s decision Wednesday to cut interest rates by a half percentage point that pushed the S&P 500 to its first record high since mid-July and the Dow to close above 42000 points for the first time.

Stocks rose immediately after the announcement but ended Wednesday lower. Shares regained those declines and much more on Thursday, rising at the opening bell and remaining aloft throughout the session.

The tech-dominated Nasdaq Composite led the way, climbing 2.5% and is now up 20% in 2024. The S&P 500 added 1.7%, surpassing the broad index’s previous peak, and is now up 19.8% this year. The Dow Jones Industrial Average gained 1.3%, or 522 points, to end at a record 42025 points.

The Russell 2000 index of smaller companies ended 2.1% higher to stretch its winning streak to seven sessions, its longest in more than three years. Stock indexes across Europe and Asia also rose.

Gold futures settled at a record of $2,588 a troy ounce, while the giant SPDR Gold Shares exchange-traded fund added 1.5%. Bitcoin climbed 5.3% to end at $63,270.05.

Ross Mayfield, investment strategist at Baird, said investors’ initial enthusiasm for a rate cut that was larger than many analysts expected was tempered by what some perceived as a downbeat press conference given by Federal Reserve Chairman Jerome Powell on Wednesday afternoon.

“Today’s reaction is the true reaction,” Mayfield said Thursday. “It’s clear the Fed will be cutting rates aggressively over the next year and that’s what should matter to markets and risk assets.”

The Fed voted to lower the benchmark federal-funds rate to a range between 4.75% and 5% while quarterly projections showed a narrow majority of officials penciled in further cuts of at least a quarter-point each at meetings in November and December.

Wednesday’s was the first rate reduction since early 2020, when the Fed cut rates to near zero amid the Covid market meltdown. The central bank raised rates starting in the spring of 2022 to fight inflation, eventually bringing borrowing costs to their highest level in a generation. Related video: ‘I was surprised’: S&P economist on the Fed’s bumper rate cut (CNBC)

Now that the central bank has pivoted to reducing rates, investors are focused on the pace of cuts. Jobs data will be key to forecasting the central bank’s next move as well as assessing whether the Fed lowered rates soon enough to avoid tipping the economy into recession, analysts said.

“Employment readings will have a larger influence on market direction over the next several months as the Fed tries to navigate the economy toward a soft-landing,” said Charlie Ashley, portfolio manager at Catalyst Funds.

New Labor Department data on Thursday showed that fewer Americans applied for unemployment benefits last week than in any week since May.

Also Thursday, the Philadelphia Federal Reserve Bank said its gauge of regional business activity climbed into narrowly positive territory in September, signaling improving conditions and surprising economists, who had forecast another month in contraction.

The data pushed bond yields higher. The yield on benchmark 10-year Treasury notes ended at 3.739%, up from 3.685% on Wednesday.

Darden Restaurants shares jumped 8.3% and led the S&P 500 higher after the Olive Garden owner said it struck a deal with Uber Technologies to deliver breadsticks and pasta to homes.

Tesla finished second in the index, rising 7.4%. Nvidia, which had waned amid concerns that its share price had outrun realistic profit forecasts, gained 4%. Facebook owner Meta Platforms climbed 3.9% to a fresh record.

Stocks that should benefit from lower borrowing costs and bond yields, such as utilities and big property owners, were among the few left behind Thursday. Such shares have rallied in recent months in anticipation of the rate cuts.

Shares of Steelcase dropped 5.7% after the maker of office furniture reported lower-than-expected sales for its fiscal quarter that ended Aug. 23 and said orders from big corporate customers were down.

Overseas, Japan’s Nikkei 225 added 2.1% while Hong Kong’s Hang Seng rose 2%. Germany’s DAX gained 1.6% to close at a new record high and London’s FTSE 100 increased by 0.9%.

Write to Ryan Dezember at ryan.dezember@wsj.com