U.S. Stocks Inch Higher, Treasury Yields Drop After Fed’s Dovish Pivot

1. Market Overview

U.S. stocks closed with modest gains on Thursday, while benchmark Treasury yields reached multi-month lows. The day witnessed a rotation out of momentum growth stocks following the Federal Reserve’s dovish pivot. The dollar also experienced a decline, hitting a two-week low against the euro and over a four-month low against the yen.

2. Market Dynamics

The three major U.S. stock indexes experienced fluctuations, eventually closing higher by mid-afternoon after the Fed’s announcement to keep interest rates unchanged. The central bank hinted that historic rate cuts are likely over, contributing to market movements.

Ryan Detrick, Chief Market Strategist at Carson Group in Omaha, Nebraska, noted the market’s consolidation after the Fed’s unexpected dovish stance. He observed strength in small caps and mid caps, indicating a potential broadening of the bull market with increased stock participation.

3. Central Bank Actions

In a busy day for central banks, the European Central Bank (ECB) held interest rates steady and resisted the idea of rate cuts, similar to the Bank of England, which emphasized elevated interest rates for an extended period. The Swiss National Bank maintained rates but adjusted inflation forecasts, while Norway’s central bank surprised with a rate hike.

4. Economic Indicators

U.S. retail sales unexpectedly rebounded in November, and jobless claims decreased, showcasing consumer resilience. This positive economic data reinforced market expectations of a soft landing for the U.S. economy, contributing to the ongoing market optimism.

5. Market Indices

The Dow Jones Industrial Average rose by 0.43%, the S&P 500 gained 0.26%, and the Nasdaq Composite added 0.19%. All three major U.S. indexes remain on track for their seventh straight weekly gains.

6. Global Market Movements

European shares, despite giving back some gains, closed at a more than 22-month high as the dovish Fed offset the ECB’s dismissal of rate cut speculation. The pan-European STOXX 600 index rose 0.87%, and MSCI’s global stocks gauge gained 1.00%.

Emerging market stocks rose by 2.01%, and MSCI’s Asia-Pacific shares index closed 1.98% higher, while Japan’s Nikkei lost 0.73%.

7. Treasury Yields and Dollar Movement

Treasury yields slid to multi-month lows as bond investors anticipated rate cuts in 2024. The 10-year note yield dropped to 3.9152%, and the 30-year bond yield eased to 4.0364%.

The dollar index fell 0.9%, with the euro rising 1.05% to $1.0987. The Japanese yen strengthened by 0.73% against the greenback, and Sterling traded at $1.2765, up 1.17%.

8. Commodity Markets

Oil prices surged against the soft dollar after the International Energy Agency (IEA) raised its oil demand forecast for the next year. U.S. crude rose 3.04% to settle at $71.58 per barrel, and Brent settled at $76.61 per barrel, surging 3.16%.

Gold prices advanced in opposition to the weakening dollar, reaching a 10-day high. Spot gold added 0.4% to $2,035.41 an ounce. The complex interplay of economic indicators and central bank decisions shaped the diverse movements across global markets on this trading day.

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