US Stocks Bounce Back After Fed Day Selloff: Markets Wrap

(Bloomberg) — US stocks kicked off Thursday’s session higher, suggesting that the selloff after the Federal Reserve signaled fewer rate cuts next year was overdone. The yen slid as the Bank of Japan left borrowing costs unchanged.

The S&P 500 rose 1% following its biggest loss for a scheduled Fed decision day since 2001. The Nasdaq 100 jumped 0.9%. The 10-year US Treasury yield rose to 4.54%, a level last seen in May. A Bloomberg dollar index fluctuated after rising to the highest since 2022 after the Fed meeting.

Data on Thursday continued to show how robust the US economy is. Notably, one of the Fed’s preferred gauges of inflation was revised up to 2.2%. On Wednesday, when the Fed scaled back the number of cuts it anticipates in 2025 to two, Chair Jerome Powell said future easing would require fresh progress on inflation. The last noteworthy piece of data for the year — personal consumption expenditures for November — is due Friday.

The Fed’s hawkish pivot was likely what the central bank had planned for next year before Wednesday’s meeting, according to Evercore ISI’s Krishna Guha. 

“To a large degree the Fed decided to pad its forecast and pre-position for Trump – pulling forward much of what would otherwise have been a hawkish update in March,” he wrote in a note. Powell said some policymakers had begun to incorporate into their forecasts the potential impact of higher tariffs that President-elect Donald Trump may implement.

That makes the Fed’s pronouncement of a new phase of policy “hawkish absolutely, but not as hawkish as it looked,” Guha wrote. He’s expecting the US central bank to skip an interest-rate cut in January unless cracks appear in the labor market.

Gross domestic product numbers on Thursday showed that the US economy expanded at a faster clip in the third quarter than previously expected. Consumer spending was also marked up. Applications for US unemployment benefits fell last week amid volatility seen during the holiday season. 

Money markets are pricing in fewer than two quarter-point reductions for the entirety of 2025, even less than what was implied in the Fed’s so-called dot plot on Wednesday. 

“Everyone has wanted to cheer on stronger growth and the positives about the Trump agenda” Mark Dowding, chief investment officer at RBC Bluebay Asset Management, told Bloomberg TV. “The flip side to that, is if we’re in a world where rates are staying high for longer, then this is clearly more problematic for long-duration assets.”

The Bank of England kept borrowing costs unchanged at 4.75%. Still, money markets now see two quarter-point reductions and a strong chance of a third in 2025 after three of the nine-member policy committee called for a cut at Thursday’s meeting. Swap traders had priced in less than two reductions next year prior to the announcement. The pound trimmed earlier gains.

The yen weakened past yet another milestone after comments by BOJ Governor Kazuo Ueda cast doubt on whether the bank could hike interest rates in January. The currency depreciated as much as 1.3%, breaching 156 versus the dollar.

In China, authorities ramped up support for the currency via its daily reference rate after the Fed’s caution over future rate cuts sent the offshore yuan to a fresh one-year low.

In commodities, oil held within its recent range. 

Key events this week: 

• US revised GDP, Thursday
• US initial jobless claims, Thursday
• Japan CPI, Friday
• China loan prime rates, Friday
• Eurozone consumer confidence, Friday
• US personal income, spending & PCE inflation, Friday

Some of the main moves in markets:

Stocks

• The S&P 500 rose 1% as of 9:34 a.m. New York time
• The Nasdaq 100 rose 0.9%
• The Dow Jones Industrial Average rose 1.1%
• The Stoxx Europe 600 fell 1.3%
• The MSCI World Index rose 0.3%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro rose 0.5% to $1.0401
• The British pound rose 0.1% to $1.2592
• The Japanese yen fell 1.5% to 157.14 per dollar

Cryptocurrencies

• Bitcoin rose 1.8% to $102,743.61
• Ether rose 0.2% to $3,699.28

Bonds

• The yield on 10-year Treasuries advanced three basis points to 4.54%
• Germany’s 10-year yield advanced six basis points to 2.31%
• Britain’s 10-year yield advanced three basis points to 4.58%

Commodities

• West Texas Intermediate crude rose 0.9% to $71.22 a barrel
• Spot gold rose 0.5% to $2,598.96 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from Cecile Gutscher and Divya Patil.

©2024 Bloomberg L.P.