Michael M. Santiago
Wall Street rallied on Wednesday, with two of the three major averages hitting record intraday highs. The advance came after the Federal Reserve stuck to its outlook for three rate cuts in 2024 and Chairman Jerome Powell reiterated that it would be It makes sense to start easing rates “at some point this year.”
Powell’s comments came at a press conference following the Fed’s latest monetary policy decision. The central bank held steady on interest rates as widely expected, while its updated dot chart allayed fears of a fewer rate cuts this year.
In the final hour of trading, the high-tech Nasdaq Composite (COMP:IND) was on track to set a new closing peak, higher than 1.01% at 16,330.87 points. The benchmark S&P 500 (SP500) and the blue-chip Dow (DJI) reached historical intraday highs, with the former surpassing the historical threshold of 5,200 points for the first time. The S&P was last on 0.69% at 5,214.41 points, while the Dow had gained 0.78% at 39,416.12 points.
All 11 S&P sectors performed positive, except healthcare and utilities.
The Fed’s monetary policy committee kept the federal funds rate at a 22-year high of 5.25%-5.50%, as widely expected. The Fed’s updated Summary of Economic Projections (SEP) showed the central bank still expects three rate cuts in 2024, unchanged from December’s dot plot. It is worth noting that at the beginning of the year, fresh from the euphoria of the Fed’s long-awaited dovish turn, Wall Street was forecasting seven rate cuts in 2024.
Powell, during the post-decision press conference, repeated the late reporter’s comments about how policymakers believed they were probably at the peak of this rate-tightening cycle and that interest rate cuts were probably appropriate this year. Powell also said the risks of the Fed hitting its inflation and employment goals have shifted into better balance.
In the run-up to today’s Fed decision, inflation data came in higher than expected, supporting the central bank’s cautious tone and denting market expectations for imminent interest rate cuts.
“Based on revised SEP projections and Chairman Powell’s initial remarks, the Federal Reserve appears to be signaling significant patience in two ways: 1) In the timing of reaching its 2% inflation target, indicating a willingness to tolerate a higher inflation for a longer period. 2) In the timing of reaching the budget size target, demonstrated by its openness to slowing the amount of QT in the months ahead,” Mohamed El said on X (formerly Twitter) -Erian, chief economic advisor of Allianz.
“The first aspect of patience is in line with the goal of maintaining economic well-being, while the second reflects the desire to prevent liquidity-related disruptions in market functioning. They constitute the right approach with the caveat of being willing to underwrite “a slightly higher risk of unanchoring inflation expectations. This rally in US stocks to new all-time highs is consistent with the double patience signaled this afternoon by the (Fed),” El-Erian added.
Treasury bond yields were mixed. The long-term 30-year yield (US30Y) rose 4 basis points to 4.48%, while the 10-year yield (US10Y) remained flat at 4.30%. The more rate-sensitive short-term 2-year yield (US2Y) fell 4 basis points to 4.65%.
“The Fed’s SEP is the worst news for long-term USTs: the long-term rate is rising. The long-term rate before 2.5% is now at 2.6%. Growth ’24: 2.1 % before 1.4%. With a higher long-term rate and no recession in At first glance, the term premium will rise,” he said on
See real-time data on how Treasury yields move across the curve on the Seeking Alpha bonds page.
While the Fed dominated almost all of the spotlight today, there were also some earnings reports from some major Chinese companies. Gaming giant Tencent (OTCPK:TCEHY) (OTCPK:TCTZF) reported a decline in quarterly revenue as it announced plans to double its stock buyback program. U.S.-listed shares of PDD (PDD) rose after parent company Pinduoduo and operator Temu beat quarterly estimates for transaction services revenue growth.
Memory chip maker Micron Technology (MU) will report results after the closing bell.