New York Stock Market Maintains Early Gains Amid Continued Expectations for Interest Rate Cuts Next Year

The three major indices of the U.S. New York stock market showed slight gains in early trading on Monday, the 18th (local time), as investors monitored remarks from Federal Reserve (Fed) officials who were cautious amid expectations of interest rate cuts next year.

At around 10:50 a.m. at the New York Stock Exchange (NYSE), the Dow Jones Industrial Average was trading slightly higher at around 37,306 points compared to the previous close. The large-cap focused S&P 500 index rose 0.29% to 4,732 points, while the tech-heavy Nasdaq index gained 0.22% to 14,846 points.

Currently, within the S&P 500, telecommunications, energy, and consumer goods stocks are rising, while technology, utilities, and real estate stocks are declining. US Steel surged more than 26% following reports of its acquisition of Nippon Steel. Costco rose over 2% after its quarterly earnings exceeded Wall Street expectations. Locker fell more than 2% after MoffettNathanson downgraded its investment rating.

[Image source=Reuters Yonhap News]

Investors are closely watching the remarks from Fed officials aiming to temper expectations of rate cuts next year following last week’s Federal Open Market Committee (FOMC) meeting, along with movements in Treasury yields and the potential for a year-end Santa rally.

Following hawkish messages from John Williams, President of the New York Federal Reserve, and Raphael Bostic, President of the Atlanta Federal Reserve, who said market expectations were premature, Austan Goolsbee, President of the Chicago Federal Reserve and a noted dove within the Fed, has also joined the chorus. Appearing on CBS the previous day, Goolsbee emphasized that the fight against inflation "is not over yet," and in an interview with CNBC on the same day, he described last week’s market reaction as "somewhat confused." He stated that "market expectations for the number of rate cuts are greater than the Fed’s economic outlook" and stressed that the Fed is not actively planning rate cuts.

Currently, the market consensus is that the Fed will begin its first rate cut in March next year and implement around six cuts throughout the year. This exceeds the three cuts projected by the Fed’s December dot plot, as pointed out by Goolsbee. At last week’s December FOMC meeting, the Fed kept U.S. interest rates steady at 5.25-5.5% and lowered the median rate forecast for the end of next year to 4.6%, suggesting the possibility of three rate cuts.

Accordingly, the market is also watching the inflation data to be released this week. If the November Personal Consumption Expenditures (PCE) price index, the Fed’s preferred inflation gauge, shows a slower increase than expected, market expectations for rate cuts next year could gain further momentum. Wall Street estimates that the November PCE, to be released on the 22nd, will rise 0.1% month-over-month and 3.2% year-over-year, continuing a slight deceleration.

In the New York bond market, Treasury yields are rebounding following a decline in Treasury prices due to profit-taking. The 10-year U.S. Treasury yield stands at around 3.95%, and the 2-year yield is at about 4.45%. The dollar index, which measures the value of the U.S. dollar against six major currencies, is steady at around 102.5. The Chicago Board Options Exchange (CBOE) Volatility Index (VIX), known as Wall Street’s fear gauge, is trading above 12.4, up more than 1% from the previous close.

There is also growing anticipation of a Santa rally as the year-end approaches. The Goldman Sachs equity strategy team led by David Kostin raised its year-end S&P 500 target from 4,700 to 5,100 in a memo to investors on the day. Kostin expects that Fed rate cuts and easing inflation will lead to lower real interest rates, supporting stock prices. Last week, Oppenheimer also raised its 2024 target to 5,200, reflecting a trend among securities firms projecting the index above the 5,000 level amid expectations of Fed rate cuts.

European stock markets showed mixed performance. Germany’s DAX index fell 0.7%, France’s CAC index dropped 0.52%, while the UK’s FTSE index rose 0.43%.