Dow, S&P 500 and Nasdaq futures rise as Fed fuels rally

US stock futures rose sharply on Thursday as confidence grew that the Federal Reserve's sharp interest rate cut would lead to a “soft landing” for the US economy.

Futures for the S&P 500 (ES=F) rose about 1.7%, while futures for the Dow Jones Industrial Average (YM=F) rose 1.2%, setting the stage for new record highs. Contracts for the tech-heavy Nasdaq 100 (NQ=F) led the gains, rising 2.2%.

Stocks are rising as investors take a closer look at the Fed's decision to begin its new interest rate cycle with a 50 basis point cut. Stocks fluctuated after Wednesday's policy announcement before closing in the red.

Wall Street has taken note of Chairman Jerome Powell's message that a deep cut in a relatively strong economy will ultimately avert the risk of recession – and that this is a sign of confidence and not panic in the current situation.

Bank of America now expects the Fed to cut interest rates by 0.75 percent by the end of the year. Previously, it had only forecast 0.50 percent. In comparison, the central bank's “dot plot” suggests that policymakers expect a cut of half a percentage point.

Read more: What the Fed's interest rate cut means for bank accounts, CDs, loans and credit cards

Rate-sensitive growth stocks rose in premarket trading, with the big technology stocks that fueled this year's rally making gains. Alphabet (GOOG), Microsoft (MSFT), Meta (META) and Apple (AAPL) each gained about 2%, while Tesla (TSLA) and Nvidia (NVDA) gained about 3%.

With the Fed completing its course corrections, some market participants are again watching the data releases as they brace for potential volatility. A weekly report from the Labor Department on initial jobless claims on Thursday morning showed a decline to the lowest level in four months. The figure for the week ending September 19 was 219,000, while the previous week's total was revised up by 1,000 to 231,000.