Stocks rise, yields and dollar fall after Fed cuts interest rates
A trader works at the New York Stock Exchange (NYSE), after Republican presidential nominee Donald Trump won the election, in New York City, on Nov 6, 2024. (Photo: REUTERS/Andrew Kelly)
NEW YORK: Major stock indexes jumped while US Treasury yields declined on Wednesday (Dec 11) after the Federal Reserve cut interest rates as expected and investors remained hopeful about further cuts ahead, even as the central bank signalled it will likely pause reductions for now.
The US dollar was lower against major currencies.
The US central bank cut rates by a quarter percentage point, and projections issued after its two-day meeting showed the median policymaker sees just one quarter-percentage-point cut in 2026, the same outlook as in September.
In his press conference after the announcement, Fed Chair Jerome Powell declined to provide guidance on whether another interest rate cut lies in the near future. However, he said the US labour market has significant downside risks and the central bank does not want its policy to push down on job creation.
Stocks gained while Treasury yields lost ground following Powell's comments.
"Today's rate cut was music to both the bond market and the stock market's ears," said Jake Dollarhide, CEO of Longbow Asset Management in Tulsa, Oklahoma.
"The guidance for possibly one cut in 2026 is better than many dire predictions of no cuts in 2026, so there's a lot of good news to parse through here for investors."
Weakness in the job market seemed to be more of a concern at this point than sticky inflation, Dollarhide said, adding there were "tremendous fears the bond vigilantes were going to hijack this bull market rally."
The Dow Jones Industrial Average rose 497.46 points, or 1.05 per cent, to 48,057.75, the S&P 500 rose 46.17 points, or 0.67 per cent, to 6,886.68 and the Nasdaq Composite rose 77.67 points, or 0.33 per cent, to 23,654.16.
Seasonally, December is one of the months of weaker performance for the S&P 500, except for the final two weeks when stocks tend to rise into year-end, known as the Santa rally, as investors square their books for the year.
MSCI's gauge of stocks across the globe rose 5.30 points, or 0.53 per cent, to 1,011.74. Earlier, the pan-European STOXX 600 index ended 0.07 per cent higher.
The market has priced in a 78 per cent chance the Fed will hold rates steady next month, compared with a 70 per cent probability just before the rate cut announcement.
Even though the rate forecast from the Fed was for one rate decline next year, the rate futures market still priced in two cuts in 2026. The Fed's decision to cut by 25 basis points drew three dissents.
Complicating matters for policymakers is the lack of data due to the recent long US government shutdown, which will delay November payrolls report to Dec 16, while inflation figures are due after that.
The yield on the benchmark US 10-year Treasury note fell 4.3 basis points to 4.143 per cent after swinging between a session low of 4.137 per cent and a three-month high of 4.209 per cent. The 10-year yield was poised to snap a four-session streak of gains, its longest run of gains in five weeks.
Yields around the globe have been climbing in recent weeks, as many central banks signalled they are either at or near the end of their own easing cycles, while the Bank of Japan is widely anticipated to hike rates at its policy meeting next week.
The US dollar fell against major peers including the euro, Swiss franc, and Japanese yen. The greenback was further weighed down by Powell's comments that the US central bank's next move is unlikely to be a rate hike.
In late afternoon trading, the dollar was down 0.8 per cent against the Swiss franc to 0.8000 franc and was last down 0.6 per cent at 155.92 against the Japanese yen.
The euro last changed hands at US$1.1691, up 0.6 per cent, while the dollar index, which measures the greenback against a basket of currencies including the yen and the euro, slid 0.6 per cent to 98.66.
Gold prices reversed course to rise after the Fed's rate cut. Spot silver rose to a record peak of US$61.85, with prices up 113 per cent so far this year.
In the energy market, oil prices rose after officials said the US seized an oil tanker off the coast of Venezuela.
Brent crude futures rose 27 cents, or 0.4 per cent, to settle at US$62.21 a barrel, while US West Texas Intermediate crude futures gained 21 cents, or 0.4 per cent, to close at US$58.46 per barrel.
