February 23, 2024

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US stocks rose on renewed hopes for interest rate cuts from the Federal Reserve

US stocks rose on renewed hopes for interest rate cuts from the Federal Reserve

US stocks rose on Wednesday after a senior Federal Reserve official hinted that the central bank was done raising interest rates, opening the door to a possible rate cut.

The Dow Jones Industrial Average (^DJI) rose about 0.2%, while the S&P 500 (^GSPC) rose about 0.5%. The Nasdaq Composite (^IXIC) rose nearly 0.7% after all three stock gauges closed higher Tuesday to resume November’s rally.

Hopes for a policy change rose after Fed Governor Christopher Waller said there was “no reason” to insist that interest rates remain “really high” if inflation continues to decelerate persistently.

While Fed Governor Michelle Bowman disagreed, other officials echoed Waller’s cautious comments, with Chicago Fed President Austan Goolsbee expressing concerns about keeping interest rates “too high for too long.”

Read more: What a pause on federal interest rate hikes means for bank accounts, CDs, loans and credit cards

Influential investor Bill Ackman is among those now betting that the Fed will start cutting interest rates earlier than expected, saying the move could come as soon as the first quarter.

Bonds extended gains supported by dovish comments, with the 10-year Treasury yield (^TNX) – which moves inversely to prices – falling by about 6 basis points to around 4.28%, its lowest level since September.

A new reading of third-quarter GDP in the United States showed that the US economy grew at an annual rate of 5.2% in the fourth quarter, an increase from the previous reading of 4.9%.

In individual stocks, General Motors shares jumped about 10% at the open after the auto giant said it would buy back $10 billion worth of shares and increase its dividend by a third.

  • Q3 GDP further revises the “moderate” narrative of the US economy

    Growth in the US economy surprisingly continues to trend upward while inflation declines.

    New data The Bureau of Economic Analysis revealed that the US economy grew at an annual rate of 5.2% in the third quarter, which is up from the 4.9% reported in the advance estimate a month ago.

    The quarterly reading of personal consumption expenditures showed that core prices, which exclude volatile categories such as food and energy, grew at a rate of 2.3% during the third quarter, down from the preliminary reading of 2.4%. The statement showed that inflation continues to slow toward the Fed’s long-term target of 2% inflation.

    Raymond James Chief Economist Eugenio Aleman described this publication as a “moderate scenario,” meaning the economy is growing at a strong pace but not so fast that the Fed needs to worry that it will be an upside risk to inflation.

    This reading comes as recent comments from Federal Reserve Governor Christopher Waller have investors believing that interest rate cuts may come sooner than initially expected. Waller said there was “no reason” for interest rates to remain “really high” if inflation continues to fall persistently.

    “maybe [Wednesday’s revision] “This has been the reason why many Fed speakers have been relatively dovish recently and likely reinforces market belief that the Fed is done raising interest rates this cycle,” Alleman wrote in a research note on Wednesday. “This is good news for the economy and for the American economy.” Markets.”

  • Stocks open higher as yields fall

    Stocks opened higher on Wednesday, as a new reading on gross domestic product showed the U.S. economy grew at a faster pace than previously reported in the third quarter and comments from Federal Reserve officials hinted that interest rate cuts could come sooner than markets initially thought.

    The Dow Jones Industrial Average (^DJI) rose about 0.2%, while the S&P 500 (^GSPC) rose about 0.5%. The Nasdaq Composite (^IXIC) rose nearly 0.7% after all three stock gauges closed higher Tuesday to resume November’s rally.

    Bonds extended gains supported by dovish comments, with the 10-year Treasury yield (^TNX) – which moves inversely to prices – falling by about 6 basis points to around 4.28%, its lowest level since September.

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