The Dow Rises as Global Markets Rally After Fed Rate Cuts Are Forecast

On Thursday, U.S. stocks surged, with the Dow Jones Industrial Average achieving a new record, propelled by the Federal Reserve's announcement of a shift in interest rate cut projections, leading to a widespread rally in global markets.

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The S&P 500 saw a gain of 20 points, or 0.4%, reaching 4727. The Dow Jones Industrial Average advanced by 104 points, or 0.3%, hitting 37,190, after reaching a record intraday high of 37,223.17. Meanwhile, the Nasdaq Composite rose by 56 points, or 0.4%, to 14,788. This positive momentum followed Wednesday's performance, where the Dow rose by 512 points, the S&P 500 increased by 63 points, and the Nasdaq gained 201 points.

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Investors maintained an optimistic outlook after the Federal Reserve surprised the market by signaling the end of its cycle of interest rate hikes and anticipating a 75 basis points rate cut in 2024. Central bank decisions from the Bank of England and the European Central Bank revealed unchanged interest rates at 5.25% and 4%, respectively. The ECB indicated an early halt to its Pandemic Emergency Purchase Program in mid-2024, contributing to market dynamics.

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Thursday's release of U.S. economic data added to the positive sentiment, showing a decline of 19,000 in initial jobless claims to 202,000 in the week ending Dec. 9, marking the lowest level since mid-October. Retail sales also increased by a solid 0.3% in November, signaling a robust start to the holiday shopping season and suggesting the economy's resilience.

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The anticipation of lower U.S. borrowing costs in the coming year fueled enthusiasm in both equity and bond markets, propelling the Dow Jones Industrial Average to a record high and pushing the benchmark 10-year Treasury yield to its lowest level since early August.

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Stephen Innes, managing partner at SPI Asset Management, described the unexpected shift as resonating harmoniously with investors, stating that the "Santa rally" gained momentum as Treasury yields approached 4%, and equities surged.

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The ongoing Thursday session saw continued optimism among investors, with 10-year Treasury yields, which were above 5% in October, dipping further to 3.920%. Stocks worldwide extended their rally, and Apple, the largest company by market capitalization, achieved a fresh record.

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While the S&P 500, having gained 22.6% in 2023, is nearing its record high, the positivity appears to extend beyond heavyweight technology stocks, as seen in the S&P 500 Equal Weight Index, currently at its best level in 21 months.

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Despite the positive trend, some analysts cautioned about signs of overconfidence and an overextended rally in the short term. The CBOE VIX index, reflecting expected S&P 500 volatility, traded just below 12, its lowest level in about four years. Mark Newton, head of technical strategy at Fundstrat, noted that while multiple sectors have experienced a positive snapback, elevated RSI readings and the risk/reward scenario suggest caution after a roughly 13% rally in the last seven weeks.

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Thursday's earnings calendar includes reports from retailer Costco and homebuilder Lennar, with results scheduled for release after the closing bell.