Markets soar on dovish Fed

U.S. Federal Reserve Board Chairman Jerome Powell speaks during a news conference at the headquarters of the Federal Reserve on December 13, 2023 in Washington, DC.

Win Mcnamee | Getty Images News | Getty Images

This report is from today’s CNBC Daily Open, our new, international markets newsletter. CNBC Daily Open brings investors up to speed on everything they need to know, no matter where they are. Like what you see? You can subscribe here.

What you need to know today

A dovish Fed
The U.S. Federal Reserve left its key interest rate range unchanged Wednesday at 5.25%-5.5%. Fed officials also penciled in three quarter-point cuts by the end of 2024, which would bring the rate to 4.5%-4.75%. Alongside those cuts, the central bank predicts the core personal consumption expenditures index to fall to 2.4% next year.

Markets jumped
U.S. markets popped Wednesday on dovish Fed. The Dow Jones Industrial Average hit a record high, while U.S. Treasury yields fell, with the 10-year yield touching its lowest level since August. The pan-European Stoxx 600 index dipped 0.06% as gains in chemical stocks failed to offset the decline in telecom shares.

Skyrocketing SpaceX valuation
Elon Musk’s satellite launch company SpaceX is discussing an agreement with investors to sell stock from insiders in a purchase offer at $97 a share. This gives SpaceX a valuation of $180 billion, a 20% increase from its previous high of $150 billion. It also makes the company more valuable than any U.S. defense contractor, including Boeing, Lockheed Martin and Northrop Grumman.

COP28 deal
At the COP28 climate summit, government ministers representing nearly 200 countries agreed to a deal that calls for “transitioning away from fossil fuels in energy systems, in a just, orderly and equitable manner.” The U.S. in recent months has produced more barrels of oil per day than countries such as Saudi Arabia and Russia — what does the landmark agreement to retreat from fossil fuels means for the world’s top economy?

[PRO] Drastic reversal
This time last year, the U.S. Federal Reserve hiked interest rates by 50 basis points. The S&P 500 ended 2022 almost 20% in the red. But a year on, the index has almost recouped all its losses. CNBC Pro’s Bob Pisani breaks down what this drastic reversal means, and the lessons investors can take away from it.

The bottom line

The Federal Reserve’s meeting yesterday showed monetary policy’s still effective — and it still has an outsized impact on financial markets.

The most important takeaways from the meeting:

  • In its dot plot, the Fed indicated three 75-basis-point cuts for 2024, one more than what it had previously penciled in.
  • The Fed statement said the committee would consider multiple factors for “any” more policy tightening — a word that hadn’t appeared previously — suggesting hikes might be over.
  • That’s because “inflation has eased from its highs, and this has come without a significant increase in unemployment,” Fed Chair Jerome Powell said at his press conference.
  • Powell also acknowledged “economic activity has slowed substantially from … the third quarter.” But “GDP is on track to expand around 2.5% for the year as a whole.”

To sum up: The U.S. economy’s on track for a soft landing, with rate cuts coming next year. 

Major stock indexes jumped on that dovish — and dare I say it — optimistic Fed meeting, closing at fresh 52-week highs. The Dow Jones Industrial Average rose 1.4% to close at 37,090.24, the first time it’s broken the 37.000 level. The S&P 500 popped 1.37% to finish Wednesday at 4,707.09, trading above 4,700 for the first time since January 2022. The Nasdaq Composite climbed 1.38%, taking its gains to 40.8% so far this year.

Other assets also celebrated the Fed meeting outcome. Treasury yields fell drastically (when yields drop, prices increase), with the 10-year yield falling 18 basis points and the 2-year sinking 30 basis points. Bitcoin spiked 4.46% to $43,008.73.

“The Fed has given the market an early holiday gift today when, finally, for the first time, they have commented positively about inflation,” said Gina Bolvin, president of Bolvin Wealth Management Group. “It appears that the Fed is moving in the market’s direction, rather than the market moving towards the Fed. The Santa Claus rally may continue.”

That’s just what investors want to hear, going into the holiday season.

— CNBC’s Jeff Cox contributed to this report.

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