Wall Street Has Best Fed Day of 2024 Across Assets: Markets Wrap

(Bloomberg) -- Stocks hit fresh all-time highs, climbing alongside bonds and commodities, in a concerted cross-asset advance that by one measure was the best for a Federal Reserve day in 2024.

Equities extended their post-election rally, with the S&P 500 approaching 6,000 and notching its 49th record this year. That was after Jerome Powell said the economy is strong while refraining from signaling whether the Federal Reserve will skip cutting rates, following Thursday’s reduction of a quarter percentage point. Treasury yields dropped across the curve and the dollar saw its biggest decline since August.

“Powell & Co. reminded investors about the solid economic footing the US continues to stand on,” said Bret Kenwell, US investment analyst at eToro. “Powell would not tip his hand on whether the Fed would likely cut rates in December, which shouldn’t surprise investors. However, the Fed appears more comfortable with the labor market and the current US economic backdrop than they did a few months ago.”

Fed officials unanimously lowered the federal funds rate to a range of 4.5% to 4.75%. They tweaked language to note “labor market conditions have generally eased,” and repeated “the unemployment rate has moved up but remains low.” The statement removed the reference to “further” inflation progress, noting inflation “has made progress toward the committee’s 2% objective but remains somewhat elevated.”

To Neil Dutta at Renaissance Macro Research, the latest Fed statement does not put a December skip in play.

“We thought Powell’s comments were generally dovish, and he gave several indications that a December cut remains his base case,” said Aditya Bhave at Bank of America Corp. “Given that the policy mix will not change for a while, we remain comfortable with our call for another 25bp cut in December.”

The S&P 500 rose 0.7%. The Nasdaq 100 climbed 1.5%. The Dow Jones Industrial Average was little changed. A Bloomberg gauge of the “Magnificent Seven” megacaps added 2.3%. Lyft Inc. jumped 23% after the ride-hailing company gave a bullish outlook. A closely watched gauge of banks dropped 2.7% after gaining over 10% in the previous session. JPMorgan Chase & Co. slid 4.3% after an analyst downgrade.

Treasury 10-year yields declined 10 basis points to 4.33%. The Bloomberg Dollar Spot Index fell 0.8%.

Wall Street’s Reaction to Fed:

I feel they want to do one more 25 basis-point cut in December and then look around to determine not only the destination (neutral rate), but also impact of new administration’s policies next year. So the Fed will be more methodical with a slower pace of rate cuts next year.

Chair Powell mentioned lower downside risks to economic activity, while also highlighting that long-term inflation expectations remain anchored. This suggests the Fed will continue to adjust the policy rate in a gradual manner and opens the door to a potential pause in December.

Despite rate cuts that now total 75 basis points, Powell considers monetary policy to still be restrictive, meaning that it remains likely that we will continue to see the potential for rate cuts at future meetings.  Reflecting the continued strength of the US economy and labor markets that appear stable enough for now, we think the Fed will remain measured in its approach.

Powell does not seem inclined to predict where policy rates will be further out, nor make any predictions of what they expect for fiscal policy impact on the economy.

In short, the Fed followed through with the cut signaled at the September decision, but was a little less adamant about the case for further rate cuts going forward. Powell did state that the Fed is still “on a path toward a more neutral stance.”

The balance of risks gives the Fed ample room to lower the Fed Funds rate well into 2025. Markets should not expect supersized rate cuts unless the economy turns south.

With additional inflation and employment data in, the Fed went 25 basis points as expected. We expect the same to occur in December. However, stronger data and uncertainty over fiscal and trade policies mean rising risks that the Fed may opt to slow the pace of easing. The word “skip” could enter our vocabulary in 2025.

The Federal Reserve continues to lift the foot off the brake pedal, cutting interest rates by one-quarter percentage point, as expected. The solid pace of economic growth means the Fed can abandon the urgency seen with the half-point cut in September and take a more deliberate, quarter-point pace with this and future rate cuts.

Corporate Highlights:

Some of the main moves in markets:

Stocks

Currencies

Cryptocurrencies

Bonds

Commodities

This story was produced with the assistance of Bloomberg Automation.

--With assistance from Rheaa Rao and Lu Wang.

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