The U.S. stock market’s remarkable year experienced a slight pause on Thursday, a predictable breather after the Nasdaq surged past 20,000 for the first time this week and the S&P 500 reached another record high. Optimism surrounding artificial intelligence and anticipated rate cuts fueled these gains. Now, attention shifts to the Federal Reserve’s final policy meeting of the year, commencing next Tuesday.
Table Content:
Decoding the Fed’s Next Move
The central bank is widely expected to implement a 25 basis point rate cut, mirroring November’s reduction, bringing the federal funds rate to 4.25%-4.5%. However, the market’s true interest lies in the Fed’s rate trajectory for 2025.
The Federal Reserve Building in Washington D.C.
Donald Trump’s recent election victory has introduced uncertainty regarding the 2025 economic landscape. Questions abound concerning potential blanket tariffs on U.S. imports, their inflationary impact, and the Fed’s subsequent response.
Currently, markets anticipate two additional quarter-point cuts in 2025, contingent on a rate reduction next Wednesday. If the Fed proceeds with a rate cut next week, it would culminate in a total of 100 basis points of easing this year, equivalent to the European Central Bank (ECB)’s easing in 2024 following its fourth rate cut on Thursday.
Global Interest Rate Landscape: A Comparative Analysis
While ECB President Christine Lagarde hinted at further rate cuts in the coming year, she refrained from specifying a definitive rate path, leaving some investors perplexed. Market expectations had leaned towards rate cuts at each ECB meeting throughout the first half of next year, potentially even at an accelerated pace, given inflation nearing target levels and persistent sluggish growth.
Euro and US Dollar banknotes representing the global currency market.
These expectations remained largely unchanged after Thursday’s decision, with projections for the deposit rate to decline to approximately 1.75% by the end of next year. Beyond the ECB, both the Swiss and Canadian central banks have recently opted for substantial 50 basis point rate cuts. The coming week will witness policy decisions from the central banks of Sweden, Norway, Britain, and Japan, in addition to the Fed’s announcement.
The global interest rate environment has propelled the dollar index towards a 1% gain this week, its most significant weekly surge in a month and the ninth positive week out of the last eleven. The U.S. currency has appreciated against all major counterparts this year.
Market Performance and Future Indicators
The S&P 500 is nearing recent highs and poised for annual gains exceeding 20% for the second consecutive year. Friday’s futures indicate a stronger opening, led once again by the tech-heavy Nasdaq. Broadcom is currently spearheading the advance, having projected quarterly revenue surpassing Wall Street estimates after Thursday’s closing bell, citing burgeoning demand for its custom AI chips. Shares have surged 14% in pre-market trading.
Stock market data displayed on a screen, reflecting market trends and performance.
Key data releases expected to influence U.S. markets on Friday include U.S. import and export price figures. These indicators will provide further insights into the economic landscape and potentially impact investor sentiment.
