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…
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