US stocks ripped higher on Wednesday, hitting new 2023 highs, as investors dissected the Federal Reserve's last interest rate decision of the year.
The benchmark S&P 500 (^GSPC) the Dow Jones Industrial Average (^DJI), and the tech-heavy Nasdaq Composite (^IXIC) all rose about 1.3% in the wake of the decision. The Dow rose nearly 500 points, breaching 37,000 and hitting its highest close ever.
The Fed held its benchmark interest rate in a range of 5.25%-5.50%, the highest in 22 years, on Wednesday. The move had been widely anticipated by investors.
Also in the Fed's release was the central bank's Summary of Economic Projections, which includes central bankers projections for interest rates next year. The Fed now sees 75 basis points of rate cuts coming in 2024, which accounts for one more rate cut than had been projected in September.
Elsewhere, oil rose to come off the lowest levels since June as the market weighed the COP28 deal to transition away from fossil fuels. West Texas Intermediate (CL=F) and Brent crude futures (BZ=F) both added roughly 1%, trading around $69 a barrel and $74 a barrel, respectively.
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Josh Schafer
Dow closes at record high
Stocks soared in reaction to the Federal Reserve's latest policy update that included projections for one more interest rate cut than initially expected in 2024.
The benchmark S&P 500 (^GSPC) the Dow Jones Industrial Average (^DJI), and the tech-heavy Nasdaq Composite (^IXIC) all rose about 1.3% in the wake of the decision. The Dow rose nearly 500 points, breaching 37,000 and hitting its highest close ever.
After lagging for much of 2023, the Dow has now risen more than 8% over the last month.
Meanwhile, Treasury yields fell on Wednesday. The 10-year Treasury yield (^TNX) fell 17 basis points to just above 4%, its lowest level since August.
Now, with the Fed projecting more interest rate cuts than previously expected in 2024, interest rate sensitive sectors are leading the market action. Sectors that hadn't joined the rally, like Financials, are now up about 10% over the last month.
To market strategist Ed Yardeni, this should be a welcome sign for investors hoping the bull market barrels on.
"What we're seeing now is it is a legitimate bull market," Yardeni told Yahoo Finance Live. "It's broadening."
Josh Schafer
Stocks soar as Powell speaks
It's a sea of green in the stock market on Wednesday afternoon as Federal Reserve Chair Jerome Powell discusses the central bank's path forward for policy.
All 11 sectors in the S&P 500 (^GSPC) are in positive territory. Interest rate sensitive sectors like Real Estate (XLRE) and Utilities (XLU) are up more than 3% while Financials (XLF) have also popped more than 1.5% on the day.
Below is a look at the sector performance on the day.
Interest rate sensitive sectors like real estate are soaring on Wednesday. (Yahoo Finance)
Josh Schafer
Strong growth is 'not itself a problem,' Powell says
The 2023 economic story has been defined by more resilient economic growth than many expected.
At times, Fed Chair Jerome Powell has noted that above-trend growth could lead to the Federal Reserve further hiking interest rates if it puts upward pressure on inflation.
But on Wednesday when asked specifically about the economy surprising to the upside again in 2024, Powell said strong growth is “not itself a problem." He noted that it only poses a dilemma if “it makes it difficult to achieve our goals.”
Still, he explained that robust growth could keep the labor market strong and put upward pressure on inflation, making it harder to get to the Fed’s 2% inflation goal. That could mean rates stay higher for longer. It “could even mean we need to hike again,” he said.
Alexandra Canal
The first cut is the deepest
Central bank officials predict rate cuts to come, with interest rates expected to tick down to 4.6% next year.
Along with its policy announcement, which kept rates unchanged in a range of 5.25%-5.5%, the Fed released updated economic forecasts in its Summary of Economic Projections (SEP), including its "dot plot," which maps out policymakers' expectations for where interest rates could be headed in the future.
Fed officials see the fed funds rate peaking at 4.6% in 2024, down from the Fed's previous September projection of 5.1%. That suggests the Fed will cut rates by 0.75% next year.
The Fed has moved in 25-basis-point increments over the last year, indicating the central bank now expects to cut interest rates three times in 2024.
Seventeen officials predict a rate cut next year, with five officials seeing a decrease of more than 0.75% while just two see no cuts. No officials see rates ticking higher in 2024.This month's expectations for rates next year were also less widely distributed compared to September's projections.
The forecast was also revised lower for 2023 to match the Fed's hold. As recently as September, officials had forecast one more rate hike this year. At the end of 2022, officials had projected interest rates would peak at 5.1% in 2023.
The Federal Reserve's latest Summary of Economic Projections showed the central bank sees inflation falling faster than initially projected. The Fed is now also projecting one more interest rate cut than initially forecasted back in September.
The changes moved investor bets on when the Fed will begin cutting interest rates. Market participants now place a roughly 60% chance the Fed cuts interest rates by the end of its March meeting, per the CME FedWatch Tool.
Prior to Wednesday's release investors had placed a roughly 47% chance of cut by March. Expectations have moved significantly from a month ago when investors saw just a 11% chance of a cut in March.
Investors are increasingly betting the Fed will cut interest rates at its March meeting. (CME FedWatch Tool)
Josh Schafer
Fed sees lower inflation, additional rate cuts in 2024
The Federal Reserve's latest Summary of Economic Projections showed the Central Bank sees inflation falling faster than previously forecasted.
The Fed now sees its preferred inflation gauge, core Personal Consumption Expenditures (PCE), falling to 2.4% in 2024. Originally, the Fed had seen inflation hitting 2.6% in 2024. Core PCE excludes the volatile food and energy categories.
With inflation falling faster than expected, the Federal Reserve upped its expectations for rate cuts in 2024. The Fed now sees 75 basis points of cuts next year, up from a previous forecast of two rate cuts in 2024.
Below is a full breakdown of how the Fed's projections shifted from September to December.
The Fed now sees core Personal Consumption Expenditures (PCE), which excludes the volatile food and energy categories, falling to 2.4% in 2024. (Federal Reserve)
Josh Schafer
Fed holds rates steady, project an additional rate cut in 2024
The Federal Reserve held its benchmark interest rate in a range of 5.25%-5.50%, the highest in 22 years, on Wednesday. The move had been widely anticipated by investors.
Also in the Fed's release was the central bank's Summary of Economic Projections, which includes central bankers projections for interest rates next year. The Fed now sees 75 basis points of rate cuts coming in 2024, which accounts for one more rate cut than had been projected in September.
Stocks, which had been flat entering the 2 p.m. ET announcement, moved higher after the release.
The Nasdaq Composite (^IXIC) popped about 0.4% while the S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) rose about 0.5%.
Josh Schafer
One chart to watch post Fed
Over the past month investor expectations for a rate cut in March moved up significantly.
As of Wednesday, investors are placing a roughly 47% chance the Fed cuts rates by the end of the March meeting, per the CME FedWatch Tool. A month ago, investors had placed less than a 11% chance on a Fed cut by the end of the March meeting.
After Wednesday's meeting, CME projections will be one way to track how market participators are digesting Fed Chair Powell's commentary and if the Fed agrees with the recent market sentiment that cuts will come sooner than expected.
Entering the Federal Reserve's December meeting, investors are placing a 47% chance that the central bank cuts interest rates by the end of the December meeting. (Yahoo Finance)
Josh Schafer
Trending tickers on Wednesday
Before the Federal Reserve takes hold of the market action, some single-stock stories have caught investor attention on Wednesday.
Pfizer (PFE) stock leads the Yahoo Finance Trending Tickers page as shares fell roughly 8%, nearly returning to its lowest levels during March 2020. The company announced on Wednesday it expects full-year 2024 earnings per share to come in at $2.05-$2.45, $0.40 per share below its prior forecasts.
Tesla (TSLA) shares fell about 3% as the electric vehicle maker plans a recall of more than 2 million vehicles. The recall comes following an investigation by the National Highway Traffic Safety Administration that found Tesla's autopilot driver-assistance system doesn't do enough to protect from incidents.
Shares of United States Steel (X) rose roughly 5% after CNBC's David Faber reported that its board is set to meet today to discuss multiple bids to buy the company. Faber noted that several of those bids are at "excess of $40 per share" and one of them is coming from Cleveland-Cliffs (CLF).
Josh Schafer
The 'bar is high' for stocks during today's Fed meeting
Stocks have ripped higher since the Fed's last meeting on Nov. 1. The S&P 500 rose over 9% between meetings, its largest increase between two Federal Reserve meetings since 2009, according analysis from Bespoke Investment Group.
To eToro US investment analyst Callie Cox this means the "bar is high" for stocks to move up as Fed Chair Powell speaks on Wednesday.
On Wednesday, investors will be looking for affirmation of that narrative both in Powell's commentary and within the latest "dot plot," which will project how many rate cuts Fed officials see happening in 2024.
A chart from Cox also showed that the moves in stocks coincided with the second-largest drop in the 10-year Treasury yield (^TNX) seen between meetings since March 2020.
Stocks soared and bond yields tumbled in between the November and December Fed meetings as investors grew increasingly confident that the central bank is done hiking interest rates. (eToro, Bloomberg)
Josh Schafer
More promising inflation news for the Federal Reserve
The inflation picture keeps improving.
New data from the Bureau of Labor Statistics out Wednesday showed Producer Prices increased less than economists had projected in the month of November.
The "core" Producer Price Index (PPI) showed prices excluding the volatile food and energy categories were flat in November compared to the month prior, lower than 0.2% increase economists had expected. On a yearly basis, core prices rose 2%, below estimates for a 2.2% increase.
This, according to economists, will be a welcome sign for the Federal Reserve as lower PPI should mean the Fed's preferred inflation gauge, core Personal Consumption Expenditures (PCE), will come in lower than initially expected for the month of November.
"Based on inputs from yesterday’s Consumer Price Index and today’s Producer Price Index, we estimate that core PCE will barely rise 0.1% over the month," Renaissance Macro Research head of economics Neil Dutta wrote on Wednesday. "If that is right, over the last six months, core PCE would have gone up just 2.1% at an annual rate. In other words, we are right there [near the Fed's 2% inflation target].
"The Fed will need to revise down its inflation estimates for 2023, but the momentum going into next year implies a bit of downside there too."
To Dutta, the promising inflation news could mean more Fed interest rate cuts than initially expected in 2024, too.
Josh Schafer
United States Steel rises as bids to purchase company reach above $40 per share
Further speculation on a deal to buy United States Steel (X) is sending shares higher on Wednesday.
The stock popped more than 3% after CNBC's David Faber reported that the company's board is set to meet today to discuss multiple bids to buy United States Steel.
Faber noted that multiple of those bids are at "excess of $40 per share" and one of them is coming from Cleveland Cliffs (CLF).
United States Steel stock has soared since Cleveland Cliffs announced it made an offer to buy US Steel in August.
Myles Udland
Pfizer shares near COVID lows after guidance cut
Pfizer (PFE) stock has round-tripped from its pandemic-era highs and is threatening its lowest levels since 2020 with Wednesday's drop.
The company announced on Wednesday it expects full-year 2024 earnings per share to come in at $2.05-$2.45, a full $0.40 per share below its prior forecasts. Pfizer's effective tax rate is also expected to climb, while offering revenue forecasts below Street estimates.
Pfizer said Wednesday that sales for its COVID-19 vaccine and COVID-19 treatments would total about $8 billion next year. Reuters noted Wednesday that analysts had expected combined sales for this category to reach $13 billion.
The stock was down as much as 9% in early trading on Wednesday, briefly falling below $26 per share. The stock reached a low of $23.39 in March 2020 as markets crashed in the early days of the COVID-19 pandemic.
Back out some of the pandemic-induced panic-selling lows reached in March 2020 and you'd have to go back to the fall of 2017 to find Pfizer stock trading near current levels.
Should shares settle near Wednesday morning's lows on a weekly basis, Pfizer's lows reached in February 2016 would be in play, according to Yahoo Finance data.
Source: Yahoo Finance
Josh Schafer
Tesla stock slips after autopilot recall
Tesla (TSLA) is recalling more than two million vehicles after a US road safety regulator deemed its autopilot driver-assistance system doesn't do enough to protect from incidents.
Shares of the EV maker were down more than 1% on the news, which follows a year-long investigation from the National Highway Traffic Safety Administration.
The NHTSA said in the recall notice said then when Autosteer is engaged and the driver isn't paying attention or is unable to intervene with the Autosteer function there "may be an increased risk of crash."
This is not the first time Tesla has had to recall cars due to issues with automated self-driving technology. Earlier this year Tesla stock fell more than 5% in a single day after issuing a recall due to issues with its Full-Self Driving beta software.
Josh Schafer
Stocks open roughly flat with most market action expected in the afternoon
Stocks opened Wednesday's trading day marginally higher as investors awaited the latest policy update from the Federal Reserve.
The Nasdaq Composite (^IXIC) popped about 0.1% while the S&P 500 (^GSPC) and Dow Jones Industrial Average (^DJI) teetered on both sides of the flat line.
With the policy update expected at 2 p.m. ET followed by a press conference with Federal Reserve chair Jerome Powell at 2:30 p.m. ET, most of the market volatility is expected to come in the final 90 minutes of trading on Wednesday as listen for clues on when the Federal Reserve may cut interest rates.
Analysis from Bespoke Investment Group shows most of the market action during Fed days has come after 2:30 p.m. ET. (Bespoke Investment Group)
Myles Udland
Investors eye record highs for Dow, S&P 500
The major US stock market indexes have had a stellar year, led by the Nasdaq Composite's (^IXIC) nearly 40% advance.
But as 2023 wraps up, investors will be keeping a close watch on potential record closes for the Dow Jones Industrial Average (^DJI) and the benchmark S&P 500 (^GSPC).
On Tuesday, the Dow notched its third-highest close on record, settling at 36,577.94.The blue chip index is just about 120 points, or less than 1%, away from its record closing high of 36,799.65 reached on Jan. 4, 2022.
Meanwhile, the S&P 500 closed at 4,643.70 on Tuesday, just over 3% away from its closing record high of 4,796.56 reached on Jan. 3, 2022.
The Nasdaq, for its part, settled at 14,533.40 on Tuesday, closer to 10% away from its record high of 16,057.44 reached in Nov. 2021.
As Yahoo Finance's Josh Schafer reported Tuesday, the Federal Reserve holding interest rates steady has been the best environment for stocks when compared to periods just before or after the Fed either raises or lowers rates. And with the Fed expected to remain on hold Wednesday — and possibly into the second or third quarter of 2024 — market history remains on the side of the bulls.
Karen Friar
All eyes on the Fed on decision day
The Federal Reserve is widely expected to hold interest rates steady this Wednesday at the end of the central bank’s last policy meeting of 2023.
Investors will listen out for any sign that the most aggressive rate-hiking campaign since the 1980s is over when the policy decision comes at 2 p.m. ET.
Fed Chair Jerome Powell (AP Photo/Mark Schiefelbein) (ASSOCIATED PRESS)
Fed Chair Jerome Powell is expected to play down the prospect of a rate cut anytime soon, even as some traders bet on a pivot as early as March.
Read this to find out what market observers are watching from the Fed, from Yahoo Finance's Jennifer Schonberger.
Donald Trump’s aides have drawn up secret plans to oust the chairman of the Federal Reserve and allow the president to set interest rates, according to reports.
