New York Stock Market Continues to Expect Interest Rate Cuts... Early Session Gains

The three major indices of the U.S. New York stock market are all showing upward trends in early trading on the 29th (local time). This follows remarks from Federal Reserve (Fed) officials the previous day mentioning the possibility of interest rate cuts, sustaining expectations of a pivot (direction change).

At around 9:52 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was up 0.17% from the previous close, trading at 30,547 points. The S&P 500, which focuses on large-cap stocks, rose 0.66% to 4,584 points, while the tech-heavy Nasdaq index increased 0.92% to 14,413 points.

All 11 sectors within the S&P 500 are currently in positive territory. Supported by expectations of rate cuts next year, leading tech stocks such as Nvidia, Google Alphabet, Apple, and Tesla are each rising around 1%. General Motors (GM) surged nearly 10% following the announcement of a $10 billion share buyback and dividend increase plan. Phillips 66 rose more than 3% on news that Elliott acquired a stake in the company.

[Image source=Reuters Yonhap News]

Investors are closely watching Treasury yields along with upcoming economic indicators scheduled for this week, including the Beige Book and Personal Consumption Expenditures (PCE), as well as remarks from Fed Chair Jerome Powell. The dovish comments from Fed Governor Christopher Waller released the previous day have further elevated market expectations for rate cuts. Waller, considered a prominent hawk, previously stated that if inflation continues to ease over several months, rate cuts could begin. Meanwhile, Fed Governor Michelle Bowman, who also spoke publicly that day, expressed the need for further rate hikes, but her comments had little impact on the market.

Adam Crisafulli, founder of Vital Knowledge, told CNBC, “The market is already far ahead of Governor Waller,” emphasizing that whether the Fed will aggressively proceed with expected rate cuts next year is crucial. He added, “There are many important economic indicators we will receive before the next meeting, and investors are waiting for clarity on these points.”

According to the CME’s FedWatch tool, federal funds futures are pricing in more than a 75% chance that the Fed will cut rates by at least 0.25 percentage points in May next year. This is a significant increase from about 55% a week ago.

With pivot expectations continuing, Treasury yields slipped in the New York bond market. The benchmark 10-year U.S. Treasury yield fell to around 4.26%. The 2-year yield, which is sensitive to monetary policy, also dropped to about 4.64%. The dollar index, which measures the dollar’s value against six major currencies, remained steady around 102.8.

Accordingly, investors’ attention is focused on the Beige Book released this afternoon and the PCE price index scheduled for the 30th. The core PCE for October in the U.S. is expected to rise 3.5% year-over-year and 0.2% month-over-month, continuing its deceleration trend. If the slowdown is confirmed in the PCE following the Consumer Price Index (CPI), expectations for rate cuts next year are likely to strengthen further. Ahead of the final Federal Open Market Committee (FOMC) meeting in December this year, Chair Powell’s discussion remarks will be released on the 1st.

The Reserve Bank of New Zealand announced today that it is keeping its benchmark interest rate steady at 5.5%, while stating it may raise rates further if necessary. South Korea is preparing for its final Monetary Policy Committee meeting of the year on the 30th.

The preliminary U.S. third-quarter GDP growth rate released today exceeded an annualized 5%. According to the U.S. Department of Commerce, the preliminary GDP growth rate for Q3 was revised upward by 0.3 percentage points from the previously announced flash estimate of 4.9% to 5.2%. This also surpasses the Dow Jones market consensus of 5.0%. It is the highest growth rate since the 7.0% recorded in Q4 2021 due to base effects following the pandemic. The Department of Commerce explained that despite downward revisions to consumer spending, the upward revision was driven by increases in nonresidential fixed investment and expanded government fiscal spending.

However, concerns remain about economic growth in Q4. Inflation remains well above the 2% price stability target, and factors such as high interest rates, credit tightening, depletion of excess savings accumulated during the pandemic, and the resumption of student loan repayments are expected to negatively impact the overall economy. The minutes from the November FOMC meeting released earlier also included the view that “economic growth will slow significantly in the fourth quarter” due to these uncertainties.

European stock markets are mixed. Germany’s DAX index is up 1.15%, and France’s CAC index rose 0.37%. Meanwhile, the UK’s FTSE index is showing slight declines.