U.S. stocks reach record highs following Fed’s announcement of potential rate cuts


U.S. stocks soared to new 2023 highs on Wednesday after the Federal Reserve hinted at ending its rate hikes and potentially cutting them in 2024, with the S&P 500, Dow Jones and Nasdaq Composite each climbing around 1.3 percent.

The Dow Jones Industrial Average surged by 512.3 points, or 1.4 percent, to close at an all-time high of 37,090.24. This extends the Dow's strong rally in the past month after lagging behind for much of the year.

The S&P 500 also climbed 1.37 percent, or 63.39 points, to close above 4,700 for the first time this year. All major S&P 500 sectors closed higher, with real estate (.SPLRCR) and utilities (.SPLRCU) leading the charge and both jumping over 3 percent. The small-cap Russell 2000 index also witnessed a 3.5 percent jump.

Meanwhile, the tech-heavy Nasdaq Composite gained 200.57 points, or 1.38 percent, to close above 14,700.

The S&P 500 and Nasdaq achieved new year-to-date closing highs, with the S&P 500 rising 22.6 percent and the Nasdaq climbing 40.7 percent. Meanwhile, the Dow is also up 11.9 percent in the same period.

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The S&P 500 registered 89 new 52-week highs and one new low, while the Nasdaq Composite marked 195 new highs and 147 new lows.

The blue-chip index surged by 512 points, or 1.4 percent, closing at 37,090. The index surpassed its previous peak of 36,799, reached in early 2023.

The Fed's decision

On Wednesday, the Fed maintained its benchmark interest rate within a range of 5.25-5.50 percent, the highest in 22 years. This move had been widely expected by investors. Since March 2022, the Fed has increased its policy rate by 525 basis points to tackle inflation.

Fed Chair Jerome Powell mentioned that the federal funds rate was expected to drop to 4.6 percent from the current range by next year's end. This means the Fed forecasts 75 basis points of rate cuts for 2024, one more than previously projected in September. Lower rates can reduce borrowing costs, fostering increased spending and overall economic growth.

Signaling a shift in policy, Powell declared that further interest rate hikes are unlikely. Still, Powell warned that strong growth might keep the job market hot and also fuel inflation, making it tough to reach the Fed's two percent target. However, he underlined that the Fed's focus is to avoid "making the mistake of keeping rates too high for too long."

The Consumer Price Index (CPI) increased by 0.1 percent last month, marking a 3.1 percent rise compared to the same period last year, according to the Labor Department's report on Tuesday.

While November saw a slight dip in headline inflation thanks to falling gas prices, the core CPI, underlying gauge excluding volatile items, continued its upward creep by 0.3 percent after a 0.2 percent increase in October and is up four percent from a year ago.

This persistent pressure on core CPI keeps the central bank on its guard, even as the headline number offers temporary relief for consumers.

Fueled by the Fed's hint at a potential policy shift, Wall Street traders are betting big on rate cuts in 2024. CME Group data show a majority now expect the federal funds rate to be between 3.75 percent and four percent by year-end, reflecting a significant shift from previous expectations.