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Stocks finally edged higher into the close Thursday after a shaky session that followed substantial gains in the previous trading day. Surprisingly impressive, although a temperature check is bound to occur with so many folks thinking the market has gotten too far over its skis on the pace of rate cuts.
That said, with $ 6 trillion of dry powder sitting in money market funds that might be champing at the bit to take the plunge into stocks, it should, at minimum, keep short sellers wary.
All three major U.S. indexes made advances, putting them on course for weekly gains. The Dow, in particular, closed at a record high for the second time this year. Benchmark bond yields, influenced by the Federal Reserve’s indication of potential interest-rate cuts in 2024, reached multi-month lows.
Investors have been increasingly anticipating a pivot by the Federal Reserve towards lowering interest rates in the coming year, and the central bank supported this view on Thursday by forecasting three “Insurance “rate cuts in 2024.
The subsequent strong bond rally has had a ripple effect on other assets, and even the beleaguered oil market has punched higher as the dollar turned precipitously weaker on stronger pushback on EU and UK market rate pricing from the ECB and BOE.
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It’s not necessarily that the Federal Reserve is inherently dovish; instead, its current stance is a response to the unexpectedly rapid decline in US inflation. The Fed is adjusting its approach in reaction to these economic dynamics. Given the parallels, the European Central Bank (ECB) may find itself compelled to make a similar shift. The situation is even more pronounced in the Eurozone, where inflation is experiencing a substantial downturn. Hence, it might be time to look at fading the ECB leg of the weaker US dollar move.
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