U.S. stocks rose Thursday as investors overlooked the government shutdown to enjoy the afterglow of OpenAI’s jaw-dropping, $500 billion valuation. The large-cap S&P 500 index rose 0.1%, the technology-focused Nasdaq Composite rose 0.4%, and the Dow Jones Industrial Average, the blue-chip index, rose 0.2%. The S&P 500 and the Nasdaq Composite hit new record highs.
OpenAI completed a secondary share sale this week, raising $6.6 billion by allowing current and former employees to sell their shares to investors. The sale set the company’s value at $500 billion. According to Bloomberg, investors included Thrive Capital, SoftBank Group, Dragoneer Investment Group, MGX and T. Rowe Price.
The high valuation signals optimism for OpenAI’s future and continued demand for ChatGPT. That optimism has spilled over to drive gains for other AI players, including chipmakers Nvidia and AMD. The message many investors are taking from the OpenAI headlines is that there’s still money to be made by AI innovators and their sponsors.
Stock futures for the S&P 500, Nasdaq 100 and Dow Jones are up ahead of the market open on Friday. Contracts tied to the S&P 500 and the Nasdaq 100 are up about 0.1%. Dow Jones futures have gained 0.2%.
Investing & Economic News To Watch
The economic calendar is light due to the federal government closure, but speeches by Federal Reserve Vice Chair Philip Jefferson and Dallas Fed President Lorie Logan could shed some light on the central bank’s approach in this dynamic economic environment.
Jefferson will speak at the Drexel Economic Forum in Philadelphia. At an event on Monday, Jefferson identified the need to balance inflation risks with support for the labor market. He also noted the uncertain economic outlook due to the Trump administration’s policy changes.
Logan will take part in a moderated conversation at the 10th Annual Conference of International Economics. On Thursday, Logan said the central bank should be “very cautious” about future rate cuts while inflation remains above the Fed’s 2% target.
Today’s Trading Lesson
How do interest rate reductions affect stocks, bonds, gold and real estate? Interest rates have been the subject of many financial headlines recently. Investors are regularly evaluating the likelihood of an interest-rate change, how that affects their portfolios and whether they need to make adjustments.
To be clear, these evaluations and the action items that result are usually proactive. In other words, many investors trade when they think interest rates will rise or fall—often, well before the change happens.
The prevailing prediction is that the Fed will reduce the federal funds rate by a quarter-point when it next meets October 28 and 29. Because most of the investment community is fairly certain this will happen, there may not be any big changes for ahead for your portfolio if the Fed moves as expected. Still, there’s always another Fed meeting around the corner, so these guidelines can help your prepare for the next round of interest-rate discussions:
- Stocks tend to gain value when interest rates decline. Investors see lower interest rates as a positive, because they reduce borrowing costs on new debt and existing adjustable-rate debt. Companies that rely on borrowing—often growth stocks—benefit the most.
- If the economy is faltering, stocks can lose value when interest rates decline. If the rate reduction signals economic weakness ahead, investors may get more conservative. In this scenario, stock prices can decline.
- Bond prices rise when interest rates decline. Bond prices are inversely related to interest rates. If rates fall, already issued bonds will carry higher interest rates than new issues. The higher-yielding bonds command higher prices.
- Gold prices can rise when interest rates decline. Gold does not pay interest. But lower interest rates reduce cash yields, which makes gold more attractive by comparison.
- Real estate values can rise when interest rates decline. Lower rates can reduce mortgage rates, which makes property more affordable and attractive as an investment.
- A rate decline related to a softening economy can limit demand for real estate. If the prevailing economic outlook is negative, real property values may remain flat or decline when interest rates fall.