The recent rally in stocks and the decline in US bond yields appear to be betting on the Federal Reserve achieving what was considered unlikely some time ago.
Wall Street rises this Thursday after its great advance in the previous session. Enthusiasm takes over the New York stock market due to the possibility that several cuts in stocks could be implemented next year. interest rates.
Thus, the S&P 500 rises 0.6%; The Dow Jones Industrial Average is up 0.5%, and is on track to set a record for the second day in a row, while the Composite Index Nasdaq climbs 0.5%.
Stocks have generally been rising since October, on hopes that inflation has slowed enough for the Federal Reserve to not only pause its interest rate increases, which have rattled the market, but even start considering cutting them back. Those hopes were strengthened Wednesday after the Federal Reserve held its main interest rate steady and said the federal funds rate is likely already at or near its peak.
More importantly, the Fed also released projections showing that its median official expects the federal funds rate to fall next year by more than previously expected. Wall Street loves lower interest rates because they can boost investment prices and relieve pressure on the economy and financial system.
The end of the tone hawkish Worldwide?
Other central banks are also meeting this week and hopes are rising that the turn toward easier conditions for financial markets and the economy could be global. Both the European Central Bank and the Bank of England decided to keep their interest rates unchanged Thursday, although each also signaled that cuts are not imminent.
Treasury Yields fell further in the bond marketas traders bet on a series of US interest rate cuts coming in 2024.
The 10-year Treasury yield fell to 3.90% from 4.03% last Wednesday. It was above 5% in October, at its highest level since 2007, and the sharp decline since then has boosted the stock market considerably.
But the recent rally in stocks and the decline in bond yields appear to be betting on the Federal Reserve achieving what was considered unlikely only a short time ago.
The hope is that the Fed can manage its interest rate policy precisely: first, by slowing the economy and affecting investment prices enough through high interest rates to curb inflation, and then by easing conditions under the right time to prevent the economy from slowing down too much and falling into a painful recession.
However, this is not yet assured, as both Fed officials and cautious investors are warning about it.
Source: Ambito
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