U.S. stocks ended higher on Thursday, with the Dow Jones Industrial Average and the S&P 500 both reaching record highs, after the Federal Reserve lowered interest rates by half a percentage point.

The Dow Jones Industrial Average rose 522.09 points, or 1.26 percent, to 42,025.19. The S&P 500 added 95.38 points, or 1.70 percent, to 5,713.64. The Nasdaq Composite Index increased 440.68 points, or 2.51 percent, to 18,013.98.

Eight of the 11 primary S&P 500 sectors ended in green, with technology and consumer discretionary leading the gainers by going up 3.08 percent and 2.20 percent, respectively. Meanwhile, consumer staples and utilities led the laggards by dropping 0.58 percent and 0.57 percent, respectively.

Wall Street has embraced Fed Chair Jerome Powell's message that a significant rate cut in a relatively strong economy was intended to stave off recession risks and reflected confidence, not panic, about the current economic conditions.

The Bank of America has adjusted its forecast, now predicting the Fed will reduce rates by 0.75 percent by the end of the year, up from its previous estimate of 0.5 percent. In contrast, the Fed's dot plot suggests that policymakers are expecting a smaller, half-percentage-point cut.

Brian Belski, chief investment strategist at BMO Capital Markets, raised his year-end target for the S&P 500 on Thursday. He increased the projection to 6,100, up from his previous estimate of 5,600.

"Much like our last target increase in May, we continue to be surprised by the strength of market gains and decided yet again that something more than an incremental adjustment was warranted," Belski wrote in a note.

With the Fed's policy shift complete, market attention has shifted back to data releases, preparing for potential volatility. On Thursday, a report from the U.S. Labor Department showed that initial jobless claims dropped to the lowest level in four months. For the week ending Sept. 19, claims fell to 219,000, far below estimates.

"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 are 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.