The Fed holds rates steady, indicates three rate cuts in 2024

The Dow Jones industrial Average jumped to a record Wednesday as the Federal Reserve signalled it would cut rates several times next year, satisfying investors who hoped the central bank would finally start to acknowledge the slowing trend of inflation with a less-aggressive monetary stance.

The 30-stock Dow added 512.30 points, or 1.40 per cent, to close at 37,090.24. At its high of the day, the Dow touched 37,094.85 to surpass 37,000 for the first time and exceed its previous all-time high set in January 2022. The S&P 500 jumped 1.37 per cent to finish the session at 4,707.09 — crossing 4,700 for the first time since January 2022 — while the Nasdaq Composite climbed 1.38 per cent. to 14,733.96. All three major averages hit fresh 52-week highs.

The central bank held the benchmark overnight borrowing rate steady in the 5.25 per cent to 5.5 per cent range as expected, but more importantly it forecast three rate cuts in 2024, which was more than it had previously indicated. Investors have been increasingly hoping for the Fed to give a clearer signal that it would start cutting rates next year with recent inflation data easing.

The Dow retreated from previous record levels in early 2022 as the Fed embarked on its policy tightening campaign to fend off inflation. Last year, the 30-stock benchmark dropped 8.8 per cent — its biggest annual decline since 2008.

Since the start of the fourth-quarter however, the Dow has surged more than 10 per cent as hope of easier policy grew.

The 10-year Treasury yield, a benchmark for mortgage rates and other loans, dropped to 4.03 per cent following the Fed’s rate forecast release, the lowest levels since August.

Shares of Bank of America and Wells Fargo, banks that stand to benefit if the Fed orchestrates a so-called soft landing, jumped 4 per cent and nearly 3 per cent Wednesday, respectively. Home Depot, whose sales could be boosted by a revival in the housing market, gained 3 per cent.

Turning to commodities, oil prices increased due to a significant withdrawal of 4.3 million barrels from U.S. crude inventories, surpassing expectations, and in response to the Federal Reserve's announcement of planned rate cuts in 2024.

Brent crude rose by $1.02, while U.S. West Texas Intermediate crude gained 86 cents. The Federal Reserve's decision to hold rates steady and signal three rate cuts in 2024 alleviated concerns about higher interest rates affecting oil demand and prices.

Turning to sectors, all sectors closed higher overnight following the Fed’s decision. Interest-rate sensitive Real Estate, closed higher by 3.58 per cent. Utilities was the best performer, whilst Communication Services recorded the fewest gains.

Futures

The SPI futures are pointing to a 1.1 per cent rise.

Currency

One Australian dollar at 8:50 AM was buying 66.64 US cents.

Commodities

Gold has gained 2.46 per cent. Silver has jumped 4.69 per cent. Copper has added 1.32 per cent. Oil has gained 1.71 per cent.

Figures around the globe

European markets closed mixed. London’s FTSE added 0.08 per cent, Frankfurt lost 0.15 per cent, and Paris closed 0.16 per cent lower.

Turning to Asian markets, Tokyo’s Nikkei added 0.25 per cent, Hong Kong’s Hang Seng fell 0.89 per cent while China’s Shanghai Composite closed 1.15 per cent lower.

The Australian share market closed 0.31 per cent higher at 7,257.79.

Ex-dividends
Metcash Limited (ASX:MTS) is paying 11 cents fully franked
Plato Inc Max Ltd (ASX:PL8) is paying 0.55 cents fully franked
WCM Global Growth (ASX:WQG) is paying 1.68 cents fully franked

Dividends payable
Graincorp Ltd (ASX:GNC)
ResMed Inc (ASX:RMD)
ALS Ltd (ASX:ALQ)
Stanmore Resources Ltd (ASX:SMR)
Civmec Ltd (ASX:CVL)

Sources: Bloomberg, FactSet, IRESS, TradingView, UBS, Bourse Data, Trading Economics, CoinMarketCap.

Disclaimer

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