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Positive Reaction To Fed Announcement May Lead To Extended Rally
US Market
The major U.S. index futures are currently pointing to a higher open on Thursday, with stocks likely to extend the rally seen late in the previous session.
The markets may continue to benefit from a positive reaction to yesterday’s monetary policy announcement by the Federal Reserve.
While the Fed left interest rates unchanged, as widely expected, the central bank also maintained its forecast for three interest rate cuts this year.
The unrevised rate cut forecast is seen as bullish for stocks, as some investors had been worried recent hotter-than-expected inflation data could lead Fed officials to reconsider lowering rates.
“We view today’s FOMC interest rate decision and press conference as bullish for the equity markets and soft landing scenario,” said Larry Tentarelli, President and Founder, Blue Chip Daily Trend Report.
“A concern that we had going into was the recent higher than forecast CPI readings,” he added. “The FOMC dot plot (FOMC members projections for future interest rate levels) remained unchanged at 3 cuts expected for 2024, which we view as a major positive.”
The futures remained positive following the release of a Labor Department report unexpectedly showing a slight drop by first-time claims for U.S. unemployment benefits in the week ended March 16th.
Stocks showed a lack of direction throughout much of the trading session on Wednesday before rallying following the Federal Reserve’s monetary policy announcement. The major averages all showed strong moves to the upside, reaching new record closing highs.
The major averages reached new highs for the session in the final hour of trading, ending the day sharply higher. The Dow jumped 401.37 points or 1.0 percent to 39,512.13, the Nasdaq surged 202.62 points or 1.3 percent to 16,369.41 and the S&P 500 advanced 46.11 points or 0.9 percent at 5,224.62.
The rally on Wall Street came after the Fed announced its widely expected decision to leave interest rates unchanged but also maintained its forecast for three rate cuts this year.
In support of its dual goals of maximum employment and inflation at a rate of 2 percent over the longer run, the Fed said it once again decided to maintain the target range for the federal funds rate at 5.25 to 5.50 percent.
The target range for the federal funds rate has remained unchanged since the Fed raised rates by a quarter point last July.
While the accompanying statement said Fed officials still need “greater confidence” inflation is moving sustainably toward 2 percent before cutting rates, the projections still point to three rate cuts this year.
The latest projections suggest Fed officials expect rates to be lowered to a range of 4.50 to 4.75 percent by the end of 2024.
The interest rate forecast is unchanged from December and points to three quarter point rate cuts over the next nine months.
At the same time, Fed officials raised their forecast for rates at the end of 2025 to a range of 3.75 to 4.0 percent from the range of 3.50 to 3.75 percent forecast in December.
Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance, said the statement and Fed Chair Jerome Powell’s subsequent press conference didn’t break any “new news,” which he called “very bullish for markets.”
“The sum total of this ‘no news is good news’ press conference is that markets continue to have a green light to run higher,” Zaccarelli said.
He added, “We aren’t surprised to see the initial reaction from investors to be to push stock prices up and expect that to continue until some new shock hits the system because this Fed isn’t going to stand in the way of the bull market.”
Airline stocks moved sharply higher over the course of the session, with the NYSE Arca Airline Index soaring by 3.8 percent after ending Tuesday’s trading at its lowest closing level in well over a month.
Substantial strength also emerged among gold stocks, as reflected by the 3.8 percent spike by the NYSE Arca Gold Bugs Index. The rally by gold stocks came as the price of the precious metal surged in afterhours trading.
Banking stocks also showed a significant move to the upside on the day, driving the KBW Bank Index up by 2.4 percent to its best closing level in a year.
Networking, brokerage and housing stocks also saw considerable strength, moving higher along with most of the other major sectors.
U.S. Economic Reports
A report released by the Labor Department on Thursday unexpectedly showed a slight drop by first-time claims for U.S. unemployment benefits in the week ended March 16th.
The Labor Department said initial jobless claims edged down to 210,000, a decrease of 2,000 from the previous week’s revised level of 212,000.
The dip surprised economists, who had expected jobless claims to rise to 215,000 from the 209,000 originally reported for the previous week.
Meanwhile, the report said the less volatile four-week moving average crept up to 211,250, an increase of 2,500 from the previous week’s revised average of 208,750.
The Federal Reserve Bank of Philadelphia also released a report on Thursday showing a modest slowdown in the pace of growth in regional manufacturing activity in the month of March.
The Philly Fed said its diffusion index for current general activity slipped to 3.2 in March from 5.2 in February, although a positive reading still indicates growth. Economists had expected the index to fall to a negative 2.3.
Meanwhile, the report said future activity indicators rose, suggesting more widespread expectations for overall growth over the next six months.
At 10 am ET, the National Association of Realtors is scheduled to release its report on existing home sales in the month of February. Existing home sales are expected to decrease to an annual rate of 3.94 million in February after surging to a rate of 4.00 million in January.
The Conference Board is also due to release its report on leading economic indicators in the month of February at 10 am ET. The leading economic index is expected to fall by 0.3 percent in February after sliding by 0.4 percent in January.
At 11 am ET, the Treasury Department is scheduled to announce the details of this month’s auctions of two-year, five-year and seven-year notes.
Federal Reserve Vice Chair for Supervision Michael Barr is due to participate in “A View from the Fed: a Fireside Discussion at the Gerald R. Ford School of Public Policy” at 12 pm ET.
Europe
European stocks have moved mostly higher on Thursday as investors cheer dovish Fed comments suggesting that the U.S. central bank remains on track to cut interest rates three times in 2024.
The Bank of England left its benchmark rate unchanged at a six-year for the fifth straight session on Thursday.
The Monetary Policy Committee, led by Governor Andrew Bailey, voted 8-1 to keep the bank rate unchanged at 5.25 percent. The rate was the highest since early 2008.
The Swiss National Bank cut its main interest rate by 25 basis points to 1.50 percent today in a surprise move, while the Norwegian central bank kept its key interest rate unchanged at 4.5 percent but signaled it could start cutting rates later this year.
Meanwhile, new survey data released earlier today showed that the Eurozone manufacturing sector activity downturn extended, while the services sector continued to expand in March.
While the U.K.’s FTSE 100 Index has surged by 1.5 percent and the German DAX Index is up by 0.4 percent, the French CAC 40 Index is nearly unchanged.
Next, a clothing, footwear and home products retailer, has moved sharply higher in London after posting improved pre-tax profit and backing guidance.
3i Group has also surged after the private equity and infrastructure firm reported an 8 percent increase in net asset value (NAV) over the third quarter.
Gold miner Centamin has also shown a strong move to the upside after delivering annual production in line with guidance.
FirstGroup has also jumped after it won the tender to operate one of London’s most iconic travel infrastructure and leisure sites.
Nationwide Building Society and Virgin Money UK have also rallied after they agreed on the terms of a recommended cash acquisition of the entire issued and to be issued share capital of Virgin Money by Nationwide.
Veolia Environnement has also risen in Paris after it was selected by the Greater Paris Water Authority to manage its public drinking water for 12 years starting in 2025.
Automakers Volkswagen and Renault have also advanced as industry data showed new car sales in the EU rose for the second straight month in February on the back of strong demand among four major markets, especially in France and Italy.
New car registrations grew 10.1 percent year-over-year to 883,608 units in February, according to monthly data from the European Automobile Manufacturers’ Association.
Germany’s Vossloh has also moved higher after achieving record sales and significant increase in EBIT in the 2023 financial year.
On the other hand, United Internet has shown a significant move to the downside after announcing its full-year results.
Asia
Asian stocks rallied on Thursday as investors cheered the Fed’s dovish stance and signal on potential rate cuts in 2024.
A weaker dollar lifted gold prices to a record high above $2,200 per ounce, while oil resumed upward momentum after falling sharply in the U.S. trading session overnight.
China’s Shanghai Composite Index fluctuated before finishing marginally lower at 3,077.11 on concerns over sluggish growth and persistent weakness in the property market. Hong Kong’s Hang Seng Index jumped 1.9 percent to 16,863.10.
Japanese markets posted strong gains as traders returned from a holiday and data showed the country’s exports grew for a third consecutive month amid increased demand in key markets.
The Nikkei 225 Index surged 2.0 percent to 40,815.66, closing at a record high. The broader Topix Index settled 1.6 percent higher at 2,796.21.
Heavyweights Fast Retailing and SoftBank Group shot up 2.8 percent and 5 percent, respectively, while automaker Toyota Motor climbed 3.4 percent.
The yen edged higher as manufacturing activity showed improvement in March and reports suggested the BOJ’s next rate hike is likely in July or October.
Seoul stocks led regional gains after experts said the Bank of Korea would likely start cutting interest rates in July.
The benchmark Kospi soared 2.4 percent to 2,754.86, marking the highest level since April 5, 2022, when the index closed at 2,759.20.
Samsung Electronics rose 3.1 percent after climbing 5.6 percent the previous day. SK Hynix shares spiked 8.6 percent.
Australian stocks rose sharply as data showed employment in the country rebounded strongly in February, with the jobless rate dropping far below forecasts.
The benchmark S&P ASX 200 Index rallied 1.1 percent to 7,782, notching a new high. The broader All Ordinaries Index ended up 1.1 percent at 8,044.60, with gold miners leading the surge after a sharp increase in bullion prices.
Across the Tasman, New Zealand’s benchmark S&P NZX-50 Index rose 0.7 percent to 11,915.71 despite weak government data showing the country has entered its second recession in 18 months as a result of aggressive interest rate hikes to tame inflation.
Commodities
Crude oil futures are slipping $0.13 to $81.14 a barrel after slumping $1.46 to $81.27 a barrel on Wednesday. Meanwhile, after inching up $1.30 to $2,161 an ounce in the previous session, gold futures are soaring $45.90 to $2,206.90 an ounce.
On the currency front, the U.S. dollar is trading at 151.29 yen versus the 151.26 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.0904 compared to yesterday’s $1.0922.
