The excellent year forUS stock marketstook a breather on Thursday, perhaps necessary after a rally that took the Nasdaq to 20,000 for the first time this week and the S&P 500 to another new historical record.
The gains are driven by optimism around artificial intelligence and expectations of rate cuts, with attention now turned to the Federal Reserve’s final policy meeting of the year, which begins next Tuesday. The central bank is likely to follow up November’s 25 basis point cut with another of the same magnitude, bringing the federal funds rate to 4.25%-4.5%.
What Wall Street analyzes
But what will interest markets most is where the Fed plans to take rates in 2025. Donald Trump’s election victory last month has left investors with many questions about the economy in 2025.
Will Trump go ahead with blanket tariffs on US imports? Will these tariffs be inflationary? And how will the Fed react?
For now, markets are pricing in just two more quarter-point cuts in 2025, assuming the Fed will lower rates on Wednesday. If the Fed cuts rates next week, it will mean a total of 100 basis points of easing this year, the same amount the European Central Bank (ECB) delivered in 2024 after cutting borrowing costs on Thursday for the fourth time.
But while the president of the ECB, Christine Lagardeleft the door open for more rate cuts next year, the ECB president refused to commit to a specific rate path, leaving some investors scratching their heads.
Markets have bet that the euro zone central bank will cut rates at every meeting until the first half of next year, possibly even faster, with inflation close to target and growth still weak.
Those expectations changed little after Thursday’s decision, with the deposit rate seeing a drop to around 1.75% by the end of next year. The ECB hasn’t been the only spectacle this week, with the Swiss and Canadian central banks each opting for 50 basis point rate cuts.
The global interest rate outlook has left the dollar index on track for a 1% gain this week, its biggest weekly jump in a month and ninth positive week in 11. The US currency has risen against all major currencies this year.
The S&P 500 is near recent peaks and on track for annual gains of more than 20% for the second year in a row, with futures on Friday pointing to a firmer open, led once again by the tech-focused Nasdaq.
This time, Broadcom is leading the way higher after the semiconductor company forecast quarterly revenue above Wall Street estimates Thursday afternoon, predicting booming demand for its custom AI chips. Shares are up 14% in pre-market trading.
Source: Ambito
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