U.S. stocks gained ground on Monday as market participants parsed mounting expectations of interest rate cuts from the Federal Reserve in the coming year and looked ahead to a week of crucial economic data.
A broad but modest rally boosted the S&P 500 and the Nasdaq to solid gains, while the Dow ended flat.
“Markets are heading in the direction of the Fed beginning to cut interest rates next year,” said Tom Hainlin, national investment strategist at U.S. Bank Wealth Management in Minneapolis. “The data, whether it’s inflation, consumer spending or the labor market, are not … deteriorating too fast or running too hot, so that Goldilocks scenario continues to play out.”
Wall Street continues to build on seven straight weeks of gains, the S&P 500’s longest weekly winning streak since 2017.
The S&P 500 is now about 1.2% shy of its all-time closing high, amid growing optimism regarding policy rate cuts in 2024, a fervor that Fed policy makers attempted to rein in on Monday.
Chicago Fed President Austan Goolsbee warned that the central bank has not pre-committed to cutting rates anytime soon, while Cleveland Fed President Loretta Mester said financial markets had got “a little bit ahead” of the central bank with respect to the timing and extent of interest rate cuts.
Even so, financial markets have priced in a 63.4% likelihood that the central bank will lower its Fed funds target rate by 25 basis points at its March monetary policy meeting, according to CME’s FedWatch tool.
“There’s still a disconnect between investors pricing in five to six cuts next year and the Fed dots that show three,” Hainlin added. “Markets continue to run ahead of the Fed and it seems to imply that it’s less important how many cuts, just that there’s going to be cuts.”
Source : Reuters