Stocks jumped Thursday, with the Dow Jones Industrial Average and S&P 500 rising to new all-time highs, as traders cheered the Federal Reserve's Wednesday decision to lower interest rates by a half percentage point.

The 30-stock index advanced 522.09 points, or 1.26%, ending at 42,025.19, marking its first close above the 42,000 threshold. The S&P 500 rose 1.7% to close at 5,713.64, topping 5,700 for the first time. The Nasdaq Composite surged 2.51% to end at 18,013.98.

Traders got some validation that the Fed was engineering a soft landing for the economy on Thursday as weekly jobless claims fell by 12,000 to 219,000, which was far below estimates.

Tech stocks rallied as the rate cut spurred investors to return to a risk-on mood. Nvidia and AMD shares popped about 4% and nearly 6%, respectively. Micron Technology added 2.2%. Other Big Tech stocks such as Meta Platforms and Alphabet advanced 3.9% and 1.5%, respectively.

Stocks leveraged to lower rates spurring the economy also jumped Thursday. Financial giant JPMorgan Chase rose 1.4%. Industrial stock Caterpillar and Home Depot gained 5.1% and 1.7%, respectively.

The Fed slashed its overnight lending rate to a range of 4.75% to 5.00% from 5.25% to 5.50% on Wednesday, which came as a surprise to some investors who criticized the size of this initial cut. This is the first rate reduction delivered by the Fed in four years.

"It's not surprising to see the markets bounce pretty nicely today. We were getting a little long in the tooth with some of the earnings growth estimates," said Timothy Chubb, chief investment officer at Girard Advisory Services.

"They continued to move higher the last couple of weeks, but broadly speaking, there's certainly a lot of companies within the market that are really going to benefit from having looser monetary policy conditions; in particular, small caps," he added.