US Stocks Fluctuate in Countdown to Fed Decision: Markets Wrap

(Bloomberg) — US stocks struggled for direction as investors waited for the Federal Reserve’s final policy decision of 2024.

The S&P 500 was little changed while the Nasdaq 100 fell 0.4% after both gauges retreated on Tuesday.

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While a quarter-point Fed interest-rate cut is almost fully priced in for Wednesday, investors will focus on the outlook for 2025 as inflation decelerates more slowly than anticipated and the economy remains resilient. The possible impact of key policies under the incoming administration of President-elect Donald Trump adds to the uncertainty.

“Today’s decision will be less consensual than what the market expects,” said Florent Wabont, an economist at Ecofi Investissements. “It think it’s the end of back-to-back cuts. The big question is how will Jerome Powell communicate this to the market.”

Last quarter, the Fed’s so-called dot plot projected a full percentage point of rate cuts for 2025, following a similar magnitude of easing this year. Currently, money markets are pricing in that a cut on Wednesday would be followed by less than two 25 basis-point reductions next year.

The rate on the 10-year Treasury was little changed ahead of the Fed announcement. That yield has surged about 80 basis points since September as traders rethink their outlook for inflation and policy easing. Data on Wednesday before markets opened showed US new-home construction unexpectedly fell in November. 

“I don’t expect the market to move hugely today,” said Guy Miller, chief strategist at Zurich Insurance Co. Yields already reflect potentially fewer rate cuts and “that there is a bit more risk premium already baked into that in terms of the inflation dynamic,” he said.

Still, while Wall Street banks have started anticipating fewer reductions, some interest-rate option traders are betting the market’s view is too hawkish and that the Fed would ease policy more closely to what it projected in September: the equivalent of four quarter-point cuts.

In equity markets, weakening breadth and fading momentum is casting a shadow over the S&P 500’s rally into the final weeks of the year. Tuesday’s session marked the 12th consecutive day where there were more single stock decliners than advancers, which mostly consisted of technology stocks.

“The broadening has to be that the small and mid-cap components of the market start to see upside surprise to growth,” Lucy Baldwin, global head of research at Citgroup Global Markets, told Bloomberg TV. “A lot goes back to the AI boom and whether you see things beyond the infrastructure names, beyond big tech.”

Meanwhile, Brazil’s financial markets are in the cross-hairs as investors lose faith in the government’s ability to contain a deepening fiscal crisis. The real has been the worst-performing currency in the world over the past four sessions, adding to a 21% drop this year against the greenback. The benchmark Ibovespa stock index — Latin America’s largest — has fallen 3.8%. 

In Japan, shares of Nissan Motor Co. jumped the most since at least 1974 on news that the ailing carmaker is exploring a possible merger with Honda Motor Co. Renault SA, Nissan’s biggest shareholder, rose as much as 7.4% in Paris. 

Bloomberg’s gauge of the dollar was little changed. 

The pound fluctuated after UK inflation rose to an eight-month high in November, drifting further above the Bank of England’s 2% target and supporting expectations that it will hold interest rates at its final meeting of the year.

The Canadian dollar slid to its lowest level since March 2020. Oil climbed after a two-day drop as an industry report signaled a sizable drawdown in US commercial crude inventories.

 

Key events this week: 

• US rate decision, Wednesday
• Japan rate decision, Thursday
• UK BOE rate decision
• US revised GDP, 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 was little changed as of 9:38 a.m. New York time
• The Nasdaq 100 fell 0.4%
• The Dow Jones Industrial Average rose 0.2%
• The Stoxx Europe 600 was little changed
• The MSCI World Index fell 0.1%

Currencies

• The Bloomberg Dollar Spot Index was little changed
• The euro was unchanged at $1.0491
• The British pound fell 0.1% to $1.2697
• The Japanese yen fell 0.3% to 153.90 per dollar

Cryptocurrencies

• Bitcoin fell 2.2% to $104,075.04
• Ether fell 2.1% to $3,848.91

Bonds

• The yield on 10-year Treasuries was little changed at 4.39%
• Germany’s 10-year yield advanced two basis points to 2.25%
• Britain’s 10-year yield advanced four basis points to 4.56%

Commodities

• West Texas Intermediate crude rose 0.8% to $70.63 a barrel
• Spot gold fell 0.3% to $2,639.53 an ounce

This story was produced with the assistance of Bloomberg Automation.

–With assistance from James Hirai, Sujata Rao, Jan-Patrick Barnert and John Viljoen.

©2024 Bloomberg L.P.