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Stocks remain in rally mode, with early Wednesday futures indicating a modestly higher opening. The Federal Reserve’s rate decision day is here, creating a fidgety mood until the post-meeting policy statement is released. While the market anticipates rate cuts in early 2024, doubts persist about the Fed reversing rate hikes so soon, given that inflation, though slowing, remains above the 2% target.
A status quo stance from the Fed seems likely, and investors will closely scrutinize the wording of the post-meeting statement and the dot-plot curve. The key question is whether Fed Chair Jerome Powell leaves room for rate cuts in the new year.
Cues From Previous Session
In Tuesday’s trading, the November inflation report indicated moderating pricing pressure, allowing major averages to extend their gains. Initial selling triggered by a larger-than-expected monthly increase in inflation was overcome as core monthly and annual rates aligned with estimates. The Dow Industrials and S&P 500 reached their highest closing levels since January 2022, while the Nasdaq Composite hit its best level since March 29, 2022, marking a four-session advance.
However, small-cap stocks, represented by the Russell 2000 Index, underperformed, experiencing a modest decline. In the S&P sector classes, financial and IT stocks showed notable strength, while energy, real estate, and utility stocks ended lower.
US Index Performance On Tuesday
| Index | Performance (+/-) | Value |
| Nasdaq Composite | +0.70% | 14,533.40 |
| S&P 500 Index | +0.46% | 4,643.70 |
| Dow Industrials | +0.48% | 36,577.94 |
| Russell 2000 | -0.13% | 1,881.27 |
Analyst Color:
The Fed will welcome slower CPI inflation at the end of 2023 but not see room for cuts yet, said Comerica Chief Economist Bill Adams.
“After badly missing their 2% inflation target in 2021 and 2022, the Fed wants to make sure inflation pressures are better under control before beginning to reduce interest rates,” the economist said. Comerica expects the Fed to stand pat at the current level of 5.25%-5.50% through mid-2024 and start its monetary policy normalization with a 25 basis-point cut in June. The central bank would have taken down rates by a cumulative 75 basis points by the end of 2024, it said.
The market, however, has jumped the gun. It has gone from “pricing in a higher-for-longer trajectory for rates a few months ago to optimism about a lower-and-sooner path as gas and oil prices fell in November and December,” Adams said.
Futures Today
Futures Performance On Wednesday
| Futures | Performance (+/-) |
| Nasdaq 100 | +0.22% |
| S&P 500 | +0.14% |
| Dow | +0.12% |
| R2K | +0.01% |
In premarket trading on Wednesday, the SPDR S&P 500 ETF Trust (NYSE:SPY) rose 0.13% to $464.72 and the Invesco QQQ ETF (NASDAQ:QQQ) gained 0.26% to $399.70, according to Benzinga Pro data.
Upcoming Economic Data:
The Federal Open Market Committee’s two-day rate-setting meeting will conclude on Wednesday and the central bank is scheduled to release its post-meeting policy statement and the updated summary of economic projections at 2 p.m. ET. The SEP will also contain the dot-plot curve, which is constructed based on Fed officials’ estimates of the Fed funds rate trajectory.
Shortly after, at 2:30 p.m. ET, Powell will host a press conference to provide insights into the Fed’s thinking when they deliberated the policy move for December and the outlook for interest rates.
Ahead of the Fed decision, the Bureau of Labor Statistics will release its producer price inflation report for November. The monthly rate of producer price inflation is expected at 0.1%, up from a negative 0.5% in October. The month-over-month change in the core producer price index is estimated to be 0.2% in November compared to unchanged prices in the previous month.
The annual rates of producer prices and core producer prices may have been at 1% and 2.2%, respectively, a slowdown from the previous month’s numbers of 1.3% and 2.4%, respectively.
See also: Futures Vs. Options
Stocks In Focus:
Commodities, Bonds, Other Global Equity Markets:
Crude oil futures edged up 0.06% to $68.65 in early European session on Wednesday after the 3.80% plunge on Tuesday.
The benchmark 10-year Treasury note fell 0.021 percentage points to 4.185% on Wednesday.
Among the global markets, Asian stocks had a mixed session as weak China data on M2 money supply and new loan growth weighed down on the Hong Kong and Chinese markets. The South Korean and Indonesian markets also settled lower, while most other major markets recorded cautious gains.
The European markets recorded uneasy gains in early trading in the run-up to the Fed meeting. The Fed decision will not be out until the markets in the region close.
The cryptocurrency rally stalled this week and on Wednesday, the digital currencies are seeing more weakness. Bitcoin (CRYPTO: BTC) fell nearly 1.6% over the past 24 hours and was last seen at a little over $41,000.
In the currency market, the dollar is modestly higher when pitted against all its major counterparts.
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