Most Wall Street experienced upward momentum, building on the excitement from the previous day’s rally, driven by expectations of multiple interest rate cuts in the coming year. The S&P 500 rose 0.3%, approaching within 1.6% of its previous all-time high. The Dow Jones Industrial Average climbed 0.4%, setting a record for the second consecutive day, while the Nasdaq composite saw a 0.2% increase.
Moderna surged 9.2% after releasing positive data from a study on its high-risk melanoma treatment used with Merck’s Keytruda. However, Adobe faced a setback, declining 6.3% due to a 2024 revenue forecast that fell short of analysts’ expectations.
Stocks have been on an upward trajectory since October, driven by optimism that cooling inflation will prompt the Federal Reserve to halt interest rate hikes and potentially consider rate cuts. This sentiment strengthened after the Fed’s announcement that it would maintain its main interest rate, coupled with projections indicating a potential decline in the federal funds rate next year.
The bond market reflected traders’ anticipation of upcoming rate cuts, with the yield on the 10-year Treasury falling to 3.91% from 4.03% late Wednesday. Real estate stocks, benefiting from lower interest rates, saw a 2.6% increase, with notable gains, including a 7.2% jump for Boston Properties. Banks also thrived, as lower interest rates could alleviate pressure on the industry. Zions Bancorp, Fifth Third Bancorp, Comerica, and Regions Financial all saw jumps of over 8%.
While hopes of effective Federal Reserve policy fuel the recent market rally and decline in Treasury yields, uncertainties remain. The delicate balance of managing interest rates to curb inflation without causing a recession poses challenges. Some concerns include the possibility of the economy remaining too hot, sustaining inflationary pressures, and forcing the Fed to maintain higher rates for an extended period.
Reports indicating a stronger-than-expected economy added complexity to the outlook. U.S. retail spending in November surpassed October, contrary to economists’ forecasts for a decline, and fewer workers applied for jobless benefits, signaling a resilient job market.
While the market anticipates substantial rate cuts, critics argue that such expectations may be overly optimistic unless the U.S. economy faces a recession. The situation remains dynamic, and caution persists among Fed officials and investors. In global stock markets, indexes showed mixed results in Europe and Asia, with Japan’s Nikkei 225 declining 0.7% due to the impact of a weakening dollar against the yen amid U.S. rate cut expectations.
