The Strong Surge of Wall Street Drives the Dow Jones Index to a Record Level
Wall Street witnessed a strong surge that propelled the Dow Jones Industrial Average to a record number on Wednesday, after the Federal Reserve hinted that interest rates may be lowered as investors expect next year.
The Dow Jones rose by 512 points, or 1.4%, surpassing 37,000 points and exceeding its previous peak of 36,799.65 points at the beginning of last year.
Reasons for the Surge and Its Impact on Investors and Non-Investors
Wall Street loves interest rate cuts as they relieve pressure on the economy and drive prices of all types of investments higher. Markets have been on the rise since October, thanks to increasing hopes that a cut may be on the way.
Lowering interest rates particularly helps investments that investors consider expensive or of lower quality or that force investors to wait a long time for significant growth. Some of the big winners on Wednesday were Bitcoin, which rose by nearly 4%, and the Russell 2000 index of small American stocks, which rose by 3.5%.
Apple is the main force driving the rise of the S&P 500, as it increased by 1.7% to achieve a record closing of its own. It and other big tech stocks have been among the biggest reasons why the S&P 500 index rose by 22.6% this year.
The Federal Reserve’s Decision Impact on the Economy and Future Expectations
The Federal Reserve’s decision to keep the benchmark interest rate in the range of 5.25% to 5.50% sparked interest on Wall Street, as it was widely expected. The rate was raised from nearly zero early last year in hopes of slowing the economy and affecting investment prices just enough: enough to curb high inflation but not so much as to cause a painful recession.
With inflation sharply declining from its peak two years ago and the economy stabilizing despite higher interest rates, hopes have risen that the Federal Reserve can achieve a soft landing. In a press conference on Wednesday, Federal Reserve Chairman Jerome Powell stated that the current benchmark interest rate has likely already reached or is close to its peak.
Despite acknowledging that inflation remains very high and that the battle against it is not over, Powell said that Federal Reserve officials do not want to wait too long before lowering the federal funds rate, which is at its highest level since 2001.
Forecasts issued by the Federal Reserve about the federal funds rate at the end of 2024 showed that the chief official expects it to be around 4.6%. Although this indicates a less severe cut than many Wall Street traders expect, it is more than what the chief official at the Federal Reserve expected three months ago.
The Impact of the Decision on the Financial Market and Future Expectations
After the forecasts were issued, traders on Wall Street increased their bets on interest rate cuts in 2024. The majority now expect the federal funds rate to finish next year in a range of 3.75% to 4% or lower, according to data from the CME Group.
Bond yields in the bond market have fallen based on these bets. Ten-year Treasury yields fell to 4.01% from 4.21% late Tuesday. They were above 5% in October, at their highest since 2007. Two-year bond yields, which are more influenced by Federal Reserve expectations, fell to 4.43% from 4.73%.
The yields had already declined earlier in the morning, after a report showed that wholesale prices rose by only 0.9% in November compared to the previous year. That was below economists’ expectations.
Warning
Cautious Investors Amid Negative Effects
These declines in bond yields and increases in stock prices may threaten the future that investors are relying on, according to cautious investors. The drop in bond yields makes it easier for American families to secure a cheaper mortgage loan and for American companies to borrow to expand their businesses. On the other hand, rising stock prices increase the wealth of families that own stocks. All of this can create inflationary pressure that could eventually force the Federal Reserve to raise interest rates again.
Samir Saamna, chief global market strategist at Wells Fargo Investment, noted that it is unlikely the Federal Reserve will cut interest rates by as much as traders expect in 2024 unless a recession occurs. He expects the U.S. economy to face a mild recession at the beginning of next year.
Impact of News on Companies and Stocks
Vertex Pharmaceuticals jumped 13.2% to achieve the largest gain in the S&P 500 index after announcing encouraging data from a study of a potential pain treatment for patients with diabetic peripheral neuropathy.
This helped offset a 6.7% loss for Pfizer, which provided revenue forecasts for 2024 that were lower than analysts expected. The bulk of the gap was attributed to expectations for its COVID-19 vaccine and treatment.
Southwest Airlines lost 3.8% after raising its expectations for the amount spent on fuel costs during the end of 2023.
Numbers Summary
Overall, the S&P 500 index rose by 63.39 points to reach 4,707.09 points. The Dow Jones added 512.30 points to reach 37,090.24 points, and the Nasdaq rose by 200.57 points to reach 14,733.96 points.
Source: AP Business Writer Matt Ott
Source: https://apnews.com/article/stock-markets-inflation-interest-rates-00104572343cfc006f7036c4fbbf4b71
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: calc(12% – 20px);
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item img{
max-width: 100%;
height: auto;
object-fit: cover;
aspect-ratio: 1 / 1;
}
.lwrp .lwrp-list-item.lwrp-empty-list-item{
background: initial !important;
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
}@media screen and (max-width: 480px) {
.lwrp.link-whisper-related-posts{
}
.lwrp .lwrp-title{
}.lwrp .lwrp-description{
}
.lwrp .lwrp-list-multi-container{
flex-direction: column;
}
.lwrp .lwrp-list-multi-container ul.lwrp-list{
margin-top: 0px;
margin-bottom: 0px;
“`html
padding-top: 0px;
padding-bottom: 0px;
}
.lwrp .lwrp-list-double,
.lwrp .lwrp-list-triple{
width: 100%;
}
.lwrp .lwrp-list-row-container{
justify-content: initial;
flex-direction: column;
}
.lwrp .lwrp-list-row-container .lwrp-list-item{
width: 100%;
}
.lwrp .lwrp-list-item:not(.lwrp-no-posts-message-item){
}
.lwrp .lwrp-list-item .lwrp-list-link .lwrp-list-link-title-text,
.lwrp .lwrp-list-item .lwrp-list-no-posts-message{
};
}
Leave a Reply