Dow Reaches All-Time High, Fintechs Jump, as Fed Keeps Rates the Same

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

Beyond that, the markets surged on commentary from Fed officials that seemed to indicate that rate cuts are coming, driving the markets higher on Thursday morning as well.

Fed projects three rate cuts in 2024

“Recent indicators suggest that growth of economic activity has slowed from its strong pace in the third quarter,” Fed officials said in a statement on Wednesday. “Job gains have moderated since earlier in the year but remain strong, and the unemployment rate has remained low. Inflation has eased over the past year but remains elevated.”

The Federal Open Market Committee (FOMC) decided to hold the federal funds rate at a range of 5.25% to 5.5%, adding that “tighter financial and credit conditions for households and businesses are likely to weigh on economic activity, hiring and inflation.”

In his remarks after the meeting. Fed Chair Jerome Powell acknowledged that rates may have peaked and are expected to come down next year.

“While we believe that our policy rate is likely at or near its peak for this tightening cycle, the economy has surprised forecasters in many ways since the pandemic, and ongoing progress toward our 2% inflation objective is not assured. We are prepared to tighten policy further if appropriate,” Powell said.

Further, the Fed’s summary of economic projections (SEP) has the federal funds rate at 4.6% at the end of 2024, 3.6% at the end of 2025, and 2.9% at the end of 2026, if the economy evolves as expected. According to the SEP, also called the “dot plot,” most committee members expect three rate cuts in 2024, followed by four in 2025 and four in 2026.

Fintechs on the move

As mentioned earlier, the markets were moving higher on Wednesday on the Fed’s actions and comments, and fintechs were among the biggest gainers.

One of the top stocks for the day was Upstart Holdings (NASDAQ:UPST), a fintech that uses artificial intelligence to handle loan requests. Upstart jumped 21% on Wednesday to $42.77 per share and is now up a whopping 223% year to date (YTD).

Another fintech that soared on the news was SoFi Technologies (NASDAQ:SOFI), which climbed 12.5% to $8.94 per share. The online bank and financial services firm, which also offers a banking-as-a-service platform, has watched its stock soar 94% YTD.

The other big fintech mover on Wednesday was Affirm Holdings (NASDAQ:AFRM), which is a leading provider of buy-now, pay-later (BNPL) services. Affirm stock jumped 12.4% on Wednesday to $44.40 per share and is now up a massive 359% in 2023 YTD.

All three of these stocks were buoyed primarily by the good news from the Fed as the prospect of lower rates makes it cheaper for these young, growing companies to invest in themselves and grow. However, given that they are also in the financial space, they should benefit more directly from the lower interest rates.

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

Keep in mind that while all three of these movers were up big in 2023, they lost a ton of value in 2022 and are still well below their recent highs. They are also all overvalued and not yet consistently profitable, so they could be prone to volatility next year. However, they are certainly stocks that are worth watching.