Markets are modestly higher after yesterday’s Federal Reserve policy announcement. Fed Chair Powell did not change rates. However, the Fed dot plot indicated at least three interest rate cuts of 25 bps each in 2024.
Markets rewarded traders that bet on the rate cut ahead of the news. Long-term treasury yields plunged. The 30-year (TLT) is headed back toward $100. 10-year yields fell below 4% to 3.95%. It peaked at almost 5% in October.
If DoubleLine’s Jeffrey Gundlach’s prediction that the 10-year yield falls to 3% next year, stocks will rise further. The S&P 500 (SPY) may retake its 2021 highs, as will the Nasdaq (QQQ) and the Russell 2000 (IWM).
Stock markets more firmly believe in a soft landing, which would avoid an economic recession. Financial stocks will thrive the most. JPMorgan (JPM) at $161.06 is a new 52-week high. Morgan Stanley (MS) still has 15.2% to go before returning to new highs. And Wells Fargo (WFC) gained 2.78% yesterday to close at $47.76.
Risks to Watch
Stock markets are rejoicing. They also rise when companies cut jobs. Watch the US dollar (UUP), inflation levels, and the government’s trillions of debt. A weak dollar would import inflation while high debt will strain the government’s balance sheet further.
