Wall Street Anticipates Upward Surge as Federal Reserve Hints at Rate Adjustments

Wall Street's primary indices are set to open on a positive note, buoyed by signals from the Federal Reserve indicating potential rate cuts in the upcoming year. This shift comes on the heels of the central bank's decision to maintain interest rates unchanged, with Federal Reserve Chair Jerome Powell expressing confidence that the recent robust monetary policy tightening may be concluding. Powell noted that with inflation declining more rapidly than anticipated, discussions on lowering borrowing costs were emerging on the horizon.

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Federal Reserve's Pivot:

Having raised its policy rate by a substantial 525 basis points since March 2022 to counteract decades-high inflation, the Federal Reserve's dovish pivot has been well-received in the market. A remarkable 17 out of 19 Fed officials projected a lower policy rate by the end of 2024. This dovish stance triggered a rally in equities, propelling the Dow Jones Industrial Average Index to achieve a record closing high.

Market Sentiment:

Investors are exhibiting a bullish outlook, with expectations of three rate cuts in the coming year, surpassing earlier predictions. Chris Zaccarelli, Chief Investment Officer at Independent Advisor Alliance, noted the positive sentiment among investors, emphasizing that this outlook exceeds previous bearish expectations.

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Market Response and Projections:

The market response has been swift, with an 83.3% likelihood of at least a 25-basis-point rate cut in March 2024, a significant increase from the pre-policy decision estimate of about 50%. There is also near-complete pricing for another cut in May, according to CME Group's FedWatch tool. Treasury yields echoed the market sentiment, dropping to multi-month lows, with the benchmark 10-year Treasury note yield standing at 3.9656%.

Economic Indicators:

Investors closely examined retail sales data for November, revealing a 0.3% monthly increase compared to an estimated 0.1% decline. Additionally, the weekly jobless claims for the week ended December 9 were lower than expected at 202,000, contributing to a positive economic outlook.

Individual Stock Movements:

Adobe witnessed a 3.9% decline after the company's revenue forecast fell below estimates. On a positive note, Moderna experienced an 11.0% increase following promising results from an experimental mRNA cancer vaccine developed in collaboration with Merck. Occidental Petroleum rose by 2.4% after Warren Buffett's Berkshire Hathaway acquired a significant number of shares, and Foot Locker saw a 4.0% increase after a favorable upgrade by Piper Sandler.

Also Read: Futures Hold Steady Ahead of Fed Decision; Tesla Faces Pre-market Slip