What Happened?

A number of stocks jumped in the afternoon session after the Federal Reserve delivered its third and final interest rate cut of the year, lowering the federal funds rate by 25 basis points (0.25%) to a 3.50%-3.75% range. 

This dovish action, combined with highly accommodating signals from Chair Jerome Powell and the Federal Open Market Committee (FOMC), sent the Dow Jones Industrial Average and S&P 500 surging. The market's bullish reaction was rooted in several key takeaways from the Fed's announcement. Most significantly, the central bank confirmed it would begin expanding its balance sheet by buying short-term bonds, a move that injects critical liquidity and lowers short-term Treasury yields. Furthermore, the Fed signaled a shift in priority by removing language that described the labor market as "remaining low," suggesting it would be more focused on supporting economic growth. While the Fed's official forecast projected only one cut for the next year, traders immediately priced in the expectation of more aggressive easing, banking on at least two rate reductions. This widespread anticipation of sustained, low borrowing costs and the virtual certainty that rate hikes would be off the table boosted corporate valuations and created powerful momentum for the equity market rally.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Footwear Retailer company Shoe Carnival (NASDAQ: SCVL) jumped 4.8%. Is now the time to buy Shoe Carnival? Access our full analysis report here, it’s free for active Edge members.
• Home Furniture Retailer company Williams-Sonoma (NYSE: WSM) jumped 4.6%. Is now the time to buy Williams-Sonoma? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Shoe Carnival (SCVL)

Shoe Carnival’s shares are very volatile and have had 22 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful but not something that would fundamentally change its perception of the business.

The previous big move we wrote about was 19 days ago when the stock gained 6.6% on the news that comments from a key Federal Reserve official boosted investor optimism for a potential interest rate cut. New York Federal Reserve President John Williams, a voting member of the rate-setting committee, suggested he sees room for "further policy easing," which sent a strong signal to the markets. Following his remarks, the probability of a December rate cut, as measured by the CME FedWatch Tool, surged from 39% to 71%. Lower interest rates can stimulate the economy by making borrowing cheaper for both consumers and businesses, which often translates to increased consumer spending. This prospect is outweighing recent reports of lower consumer confidence, as investors bet that a more accommodative Fed policy will support retailers through the holiday season.

Shoe Carnival is down 43.5% since the beginning of the year, and at $18.24 per share, it is trading 49.9% below its 52-week high of $36.38 from December 2024. Investors who bought $1,000 worth of Shoe Carnival’s shares 5 years ago would now be looking at an investment worth $1,002.

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