Wall Street woke up in high spirits Thursday after Hope of Fed’s Rate cut, eager to resume the “buy everything” dance sparked by the Federal Reserve’s dovish turn on Wednesday. Stock futures danced across the green, with the S&P 500 up 0.3%, the Nasdaq 100 adding 0.4%, and the Dow Jones Industrial Average waltzing with a 0.3% gain.
Fed’s Rate Cuts Dovish Melody Sets the Pace:
Remember Wednesday’s record-breaking performance for the Dow? That wasn’t just a fleeting pirouette. The Fed’s latest “dot plot,” a fancy forecast of future interest rates, hinted at three elegant rate cuts in 2024. And even better, Chairman Powell refrained from throwing cold water on the post-announcement rally, even mentioning “talk of Fed’s rate cuts” – music to investors’ ears.
Dissecting the Rhythm: Analysts like Steve Englander of Standard Chartered dissected the Fed’s new tune, noting that if inflation data continues its downward trend, rate cuts could start as early as March 2024. This sent the markets into a freewheeling jig, with futures markets now predicting an 85% chance of a March cut, and even a 15% chance it could be a hefty 50 basis points!
Also Read: Fed Singnaled 3 Rate Cuts in 2024
But Hold Your Horses: Not everyone’s convinced the Fed will waltz straight into rate cuts. Moody’s Analytics, for instance, throws some skeptics in the air, warning that three cuts next year might be a bit too ambitious. And some speculate the upcoming US presidential election might be influencing the Fed’s tone, with an eye on keeping things calm on the economic front.
Market Moves to the Beat: Regardless of the precise timing, the Fed’s new melody has the markets humming with excitement. Bond yields, the sworn enemies of stock prices, are doing the “down-dog” pose, with the 2-year dropping a whopping 30 basis points, its biggest daily dip since March! Even the 10-year isn’t immune, swaying lower to its lowest level in four months.
Economic Footnotes: While Wall Street dances, the economy keeps tapping its toes. Today’s calendar features weekly jobless claims, expected to hold steady at 200k, and November retail sales, which might see a slight dip due to the shift towards holiday spending. But remember, Paul Donovan of UBS reminds us, “fun spending” like those overpriced oat milk lattes at the airport won’t be captured in this data, so the true holiday shopping picture might be rosier than expected.
The Takeaway: Wall Street is basking in the glow of the Fed’s dovish tune, but remember, the economic orchestra can change tempo on a dime. Keep your ears peeled for any shifts in the rhythm, diversify your portfolio like a skilled dancer, and most importantly, enjoy the music while it lasts!