Stocks Rally as Traders Bet on Early Fed Rate Cuts
NEW YORK, Dec 13 - U.S. stocks surged on Wednesday, fueled by growing conviction that the Federal Reserve will begin cutting interest rates as early as March, perhaps easing pressure on the economy and boosting corporate earnings. The Dow Jones Industrial Average closed up 348.94 points, or 0.97%, at 36,170.13, while the S&P 500 gained 1.41% to 4,604.37. The Nasdaq Composite led gains, jumping 1.80% to 14,353.05.
The dramatic shift in expectations follows softer-than-expected inflation data released tuesday and comments from Fed officials suggesting a willingness to consider rate cuts sooner than previously anticipated. traders now assign a roughly 70% probability to a rate cut by the March meeting, according to the CME FedWatch tool, a significant jump from below 30% just days ago. This pivot has triggered a broad-based rally, benefiting growth stocks especially sensitive to interest rate movements.
“The market is pricing in a much more dovish Fed than we thought even a week ago,” said Michael Green, portfolio manager at Simplify Asset Management.”The combination of cooling inflation and a resilient economy is creating a Goldilocks scenario that investors are eager to capitalize on.”
The yield on the 10-year Treasury note fell sharply to 4.13%, further supporting risk assets. Technology stocks saw substantial gains, with Apple rising 1.8%, Microsoft adding 2.1%,and Amazon climbing 2.4%. Financials also benefited from the prospect of lower borrowing costs, with JPMorgan Chase up 1.3%.
However, analysts caution that the rally may be overextended and vulnerable to a correction if economic data surprises to the upside or Fed officials push back against the aggressive pricing of rate cuts. The Fed is scheduled to hold its next policy meeting December 12-13, and while no rate changes are expected at this meeting, the accompanying economic projections and chair Jerome Powell’s press conference will be closely scrutinized for further clues about the central bank’s future path.
The market’s reaction underscores the sensitivity to inflation data and Fed policy signals. Investors will be closely watching upcoming reports on employment, consumer spending, and manufacturing activity for further confirmation of the disinflationary trend. A sustained easing of inflationary pressures would likely solidify expectations for early rate cuts, potentially setting the stage for a continued rally in the new year.
