Markets “In a Nutshell” for December 18, 2023
Investment Week at a Glance
Stocks finished higher for the week. The Dow Jones Industrial Average rose 2.9%, the S&P 500 was up 2.50%, and the NASDAQ rose 2.80%. Foreign stocks (MSCI EAFE) were also up, rising 0.4%. Bond prices were up for the week, with the 10-year U.S. Treasury ending the week at 3.91%. (Data source: Wall Street Journal)
Powell Brings Early Presents
The Fed came out and indicated there would be no more rate hikes and that they are expecting 3 rate cuts in 2024. Markets instantly jumped on this news and rates dropped instantly. The Dow Jones jumped over 500 points in the span of 2 hours on Wednesday and the 10-year went from 4.116% to 3.887%. The market has been waiting for the Fed to indicate rate hikes were done with and rate cuts were on their way and they got their wish right before the year wraps up. As we get closer to rate cuts the likelihood of a “soft landing” for the economy seems to increase by the day. Inflation continues to cool while unemployment is still relatively low and the economy continues to grow at a reasonable pace.
While the market had a positive reaction to the Fed meeting last week, there is still some disagreement between the market and the Fed as far as rates go. Market expectations are currently pricing in a Fed Funds Rate of 3.8% at the end of 2024. The Fed however has its dot plot at 4.6%, meaning the market is expecting double the rate cuts that the Fed is forecasting. This could cause the market some pressure next year if the Fed and the market do not close this gap as the market uses rates to value what companies are worth. Lower rates typically promote growth whereas higher rates restrict the growth of companies as debt will cost more. Eventually, this gap will need to be closed and it could cause some volatility throughout 2024.
What is the current Fed Funds Rate? (Scroll Down for Answer)
Have a Great Week!
3. 5.25%-5.50%. The Fed increased rates all the way from 0% to where we are now in an attempt to combat the inflation that we have seen spike since Covid.