The U.S. stock market drifted on Monday ahead of the Federal Reserve’s meeting this week. The meeting could set Wall Street’s direction into next year. The S&P 500 rose 0.4%, coming off its recent gains.
The S&P 500 is up 26.9% YTD and the Fed is about to cut.
I see 7 times they cut with stocks up more (since 1970).
1975 (5 times), 1981, and 1995.
— Ryan Detrick, CMT (@RyanDetrick) December 18, 2024
The Nasdaq composite climbed 1.2% to a record high. The Dow Jones Industrial Average fell 110 points, or 0.3%. Broadcom leaped 11.2%, leading the S&P 500 for a second straight day.
Joining @BloombergTV for #TheClose around 4:10pm ET today to talk today’s Fed meeting and market reaction, etc.
— Liz Ann Sonders (@LizAnnSonders) December 18, 2024
The company delivered a profit report last week that beat analysts’ expectations. Broadcom is riding a wave of enthusiasm about its artificial-intelligence offerings.
Up 11 basis points to 4.51%, and down 3%:
The reactions of markets — specifically the yield on the US 10-year government bond and the S&P stock index — to this afternoon’s Federal Reserve communication, the latest example of what has tended to be confused and confusing flip flops… pic.twitter.com/YmMuEqQacY— Mohamed A. El-Erian (@elerianm) December 18, 2024
The market’s main event will arrive on Wednesday when the Federal Reserve will announce its final move on interest rates for the year.
The widespread expectation is that it will cut its main rate for a third straight time. The Fed is trying to boost the slowing job market after getting inflation nearly down to its target of 2%. The question is how much more the Fed will cut rates next year.
Fed officials will release projections for where they see the federal funds rate ending in 2025, along with other economic indicators. Fed Chair Jerome Powell will also answer questions in a press conference following the meeting. For now, the general expectation among traders is that the Fed may cut rates a couple more times in 2025, according to CME Group data.
But such expectations have been shrinking, suggesting inflation may be tougher to get down to 2%. Besides last month’s slight acceleration in inflation, another concern is that President-elect Donald Trump’s preferences for tariffs and other policies could lead to higher inflation. Goldman Sachs economist David Mericle has dropped his earlier forecast of a cut by the Fed in January.
Beyond the possibility of tariffs, there is uncertainty about exactly how low rates need to go to avoid pressing the brakes on the economy.
Nasdaq hits record amid Fed anticipation
Expectations for a series of rate cuts by the Fed have been one of the main reasons the S&P 500 has set an all-time high.
The economy has held up better than many feared, continuing to grow even after the Fed hiked the federal funds rate to a two-decade high to combat inflation, which topped 9% two summers ago. On Wall Street, MicroStrategy jumped as much as 7% during the day, benefiting from bitcoin’s price, which set another all-time high. However, its stock ended the day down by less than 0.1% after bitcoin’s price pulled back below $106,000 after setting a record above $107,700.
The software company has been building its cryptocurrency holdings, and its stock price has more than sextupled this year. It will also soon join the Nasdaq 100 index. Bitcoin’s price has catapulted from roughly $44,000 at the start of the year, riding a recent wave of enthusiasm.
Honeywell rose 3.7% after saying it’s still considering a spin-off or sale of its aerospace business as part of a review of its overall business. It plans to provide an update with the release of its fourth-quarter results. They helped offset a drop for Nvidia, whose chips are powering much of the world’s move into AI.
Its stock fell 1.7%, acting as the heaviest weight on the S&P 500. All told, the S&P 500 rose 22.99 points to 6,074.08. The Dow Jones Industrial Average fell 110.58 to 43,717.48, and the Nasdaq composite rose 247.17 to 20,173.89.
In the bond market, Treasury yields held relatively steady. The yield on the 10-year Treasury edged down to 4.39% from 4.40% late Friday. The two-year yield, which more closely tracks expectations for the Fed, eased to 4.24% from 4.25%.
In stock markets abroad, indexes fell modestly across much of Europe and Asia. They sank 0.9% in Hong Kong and 0.2% in Shanghai after lackluster economic indicators for November despite attempts to strengthen the world’s second-largest economy. South Korea’s Kospi fell 0.2% as law enforcement authorities pushed to summon the impeached president for questioning over his short-lived martial law decree, and the Constitutional Court met to discuss whether to remove him from office or reinstate him.
