U.S. Stocks Soared After Fed Holds Rates Steady and Signals Multiple Rates Cuts In 2024

Barry Adams
13 Dec, 2023
New York City

Stocks on Wall Street surged after the Federal Reserve left rates unchanged and signaled multiple rate cuts in 2024.

Benchmark indexes rebounded after the Federal Reserve left the fed funds rate range unchanged between 5.25% and 5.50%.

Policymakers noted that economic growth has slowed, job growth has moderated but remains strong, and inflation is on a downward trajectory but remains elevated.

The 22-year high rates were left unchanged for the third time in a row, and policymakers also laid the groundwork for rate cuts in 2024 and beyond.

Eight policymakers estimated fewer than three quarter percentage point rate cuts in 2024, while five projected a larger number of rate cuts next year.

The central bank, in its 'dot plot,' also revised its higher GDP growth estimate by 50 basis points to 2.6% in 2023, but lowered its estimate to 1.4% from 1.5% in 2024.

The projection for the unemployment rate was held steady at 3.8% in 2023 and 4.1% in 2024.

The Personal Consumption Expenditure, or PCE, inflation estimate for 2023 was revised lower to 2.8% from 3.3% estimated in September and for 2024 to 2.4% from 2.5%, respectively.

The two latest inflation reports showed a mixed picture on the inflation front. Consumer price inflation in November eased to 3.1%, but the core rate of inflation held steady at 4.0%.

The latest update on producer prices showed that wholesale inflation held steady in November.

Investors also reviewed the persistent decline in energy prices, and crude oil prices extended their weekly decline to the eighth week in a row.

Investors have bid up stocks for the last six consecutive weeks in the belief that interest rates are more likely to decline.

But the Federal Reserve may keep higher rates for longer before strong evidence emerges that inflation is on a sustainable downward path to the Fed's target rate of 2%.

 

Wholesale Inflation Held Steady In November 

The Producer Price Index was unchanged from the previous month in November after adjusting for seasonal factors, the Bureau of Labor Statistics reported Wednesday.

On an unadjusted basis, the producer price index increased 0.9% from a year ago.

Producer Price Index for final demand, less food, energy, and trade services, edged up 0.1% in November from the previous month and rose 2.5% from a year ago.

 

U.S. Indexes and Yields

The S&P 500 index gained 0.7% to 4,678.52, and the Nasdaq Composite increased 0.8% to 14,647.38.

The yield on 2-year Treasury notes decreased to 4.53%, 10-year Treasury notes inched lower to 4.08%, and 30-year Treasury bonds increased to 4.23%.

Crude oil increased $1.04 to $69.65 a barrel, and natural gas prices rose 0.1 cent to $2.32 a thermal unit.

Gold increased $20.34 to $2,005.25 an ounce ahead of the Fed's rate decision on Wednesday.

The dollar index, which weighs the U.S. dollar against a basket of foreign currencies, edged higher to 103.14.

 

U.S. Stock Movers

Tesla declined 1.0% to $234.65 after the electric vehicle maker recalled about 2 million vehicles to fix an Autopilot defect.

Pfizer decreased 7.2% to $26.83 after the pharmaceutical company reported a weaker-than-anticipated 2024 revenue outlook.

Full-year revenue is anticipated to range between $58.5 billion and $61.5 billion, and the company said earnings are likely to be negatively impacted by its recent acquisition of cancer treatment-focused biotech company Seagen.

 

Modest Gains In European Markets 

European market indexes were little changed after the release of the eurozone industrial production data and ahead of the Federal Reserve's rate decision later in the day.

Benchmark indexes in Frankfurt, Parris, and London edged higher, and the euro drifted lower.

 

Eurozone Industrial Output Shrank In October

Eurozone industrial output declined 0.7% from the previous month in October, Eurostat reported Wednesday.

The decline in output moderated after falling 1.0% in September.

Capital goods output fell 1.4% following a 0.6% decrease in both intermediate goods and non-durable consumer goods.

On the other hand, durable goods output rose by 0.2%, and energy output rose by 1.1%.

Industrial output declined 6.6% from a year ago.

 

UK GDP Unexpectedly Contracted In October 

The UK GDP unexpectedly contracted by 0.3% in October from the previous month after rising by 0.2% in September, the Office for National Statistics reported on Wednesday.

GDP expanded 0.3% from a year ago, slower than 1.3% in September.

The pound inched lower after the release of the GDP report.

 

Europe Indexes and Yield

The DAX index decreased 0.2% to 16,766.05, the CAC-40 index fell 0.2% to 7,531.22, and the FTSE 100 index advanced 0.1% to 7,548.44.

The yield on 10-year German bonds decreased to 2.20%; French bonds traded lower to 2.74%; the UK gilts eased to 3.91%; and Italian bonds inched higher to 3.99%.

The euro traded lower to $1.078, the British pound inched lower to $1.253, and the U.S. dollar eased to 87.62 Swiss cents.

Brent crude increased $1.06 to $74.30 a barrel, and the Dutch TTF natural gas advanced by €1.11 to €35.81 per MWh.

 

Europe Stock Movers

Weak energy prices dragged down the stocks of oil explorers, refiners, and marketers.

BP plc, Shell PLC, TotalEnergies SE, and Repsol fell around 0.3%.

Entain PLC rose 4.5% to 842.40 pence on a report that its chief executive, Jett Nygaard-Andersen, is stepping down and the board has appointed Stella David, a non-executive director, as interim chief executive until a permanent replacement has been found.

In August, the owner of Ladbrokes and Coral bookmakers set aside £585 million to cover penalties and fines related to a tax authority investigation into alleged illegal practices linked to a Turkish-facing online betting and gaming business that the company owned between 2011 and 2017.

Inditex rose 1.2% to €38.75 after the Spanish apparel retailer reported strong holiday sales and lifted its fiscal year 2023 margin outlook.

Net sales in the nine-month period ending in October increased to €25.6 billion from €23.0 billion, net income rose to €4.1 billion from €3.1 billion, and net income per share rose to €1.32 from 99 euro cents.