Dow Hits Record High as Fed Holds Rates, Eyes Deeper Cuts in 2024

Dow Jones Industrial Average soared to a historic high on Wednesday, propelled by the Federal Reserve’s decision to maintain interest rates while hinting at potential rate cuts in the coming year, triggering a significant rally in growth stocks, especially in the tech sector. By the 4:00 PM ET (9:00 PM GMT) close, the Dow had surged by 506 points to reach an unprecedented 37,084.78. The S&P 500 and NASDAQ Composite also posted gains of 1.4%, with the latter reaching an all-time high.

The Federal Reserve’s dovish stance, signaling an expectation of a faster-than-anticipated cooling of inflation, brought optimism to the stock market. Fed members projected a benchmark rate of 4.6% for next year, implying the possibility of three rate cuts in 2024, in contrast to the earlier estimate of 5.1% or two rate cuts.

According to Steve Miley, COO and Chief Analyst at TradeDay, the dot plot chart indicates three rate cuts in 2024, aligning with futures curve pricing, which anticipates four rate cuts next year. The Fed Rate Monitor Tool from Investing.com reveals a significant shift in market expectations, with about 60% of traders now anticipating a rate cut as early as March, compared to 40% just a day earlier.

Following the Fed’s decision, Treasury yields experienced a sharp decline, with the two-year Treasury yield falling 28 basis points to 4.447%, and the 10-year Treasury yield dropping 19 basis points to 4.024%. This decrease in yields, expected to persist into early 2024, is seen as a positive factor for stocks.

Analysts, including Miley, anticipate a continued positive correlation between stocks and US bonds, paving the way for substantial gains in equities. They predict a potential Santa rally in stocks extending into January, with major US stock averages reaching new multi-month highs, possibly challenging all-time peaks in Q1 2024.

Amid economic indicators, November’s producer prices remained unchanged, indicating ongoing disinflation as declining energy product costs offset higher food prices. This follows the previous day’s report showing slowing price pressures in November’s consumer prices.

In the corporate arena, Pfizer faced a stock slump of over 6% after projecting 2024 sales significantly below expectations due to decreased demand for COVID vaccines and treatment. Southwest Airlines and Tesla also experienced stock fluctuations, with the former falling 4% due to an increase in fourth-quarter fuel cost forecasts, and the latter closing 1% lower despite announcing a recall for over two million vehicles in the US fitted with its Autopilot advanced driver-assistance system to install new safeguards.

Oil prices settled higher on Wednesday after data from the Energy Information Administration revealed a more substantial-than-expected decline of 4.3 million barrels in US crude inventories for the week ending December 8, surpassing predictions of a 650,000 barrel decrease. Despite the positive news, the potential draw came after several consecutive weeks of strong builds, maintaining caution in the market’s upward momentum.