Wall Street on a High: Dow Breaks Yearly Record Amid Weak Economic Data
The Game Changer
A wave of optimism swept across Wall Street as the Dow Jones surged to a new annual high, fueled by weak economic data and interest rate cut predictions. Some investors were already banking on the Federal Reserve's first rate cut in January.
The Recovery that Fizzled
The recent bond market rally showed no signs of slowing down, leading to a sharp fall in market interest rates. The ten-year yield dropped to 4.21%, a significant decrease from its high of nearly 5% in mid-October. During this period, US economic manufacturing activity contracted for the 13th consecutive month in November, which was viewed as a sign of the success of the interest rate hikes.
Jerome Powell's Assurance
The potential of interest rate hikes reaching their end was hinted at by U.S. Federal Reserve Chairman Jerome Powell. While he remained cautious, Powell mentioned that the recent decline in inflation and the gradual slowdown in wage growth were proof of the success of the Fed's rate hikes.
The Probability of a Rate Cut
Consequently, the probability of an early January rate cut increased from 41.5% to 55%, as per the interest rate futures market. The likelihood of a rate cut as early as March advanced from 4% to 10%, presenting a stark contrast to the previous day's figures.
The Dow's Unyielding Advance
The Dow Jones climbed an additional 0.8% to a remarkable high of 36,245 points. The recent rally moved the index closer to its record high of 36,952 points, set in January 2022.
Currency Market Swings
The dollar's recovery halted in the face of falling market interest rates and ended the day marginally unchanged against the euro. On the other hand, gold saw a boom as the falling interest rates made it a relatively more attractive investment, causing its price to rise to 2072 per troy ounce, marking its highest level of the year.
Oil Prices on a Slide
Despite OPEC+ agreeing on additional production cuts, the oil price plummeted by 2% as the market's cautious reception to the voluntary cut raises doubts about their implementation. According to market experts, the OPEC+ group may eventually opt for an increase in production, with the voluntary cuts possibly being reversed by the end of 2024.
Pfizer Takes a Hit
Pfizer shares dropped by more than 5% following the termination of a slimming drug study. Tesla's shares remained unaffected despite the delivery of its first pick-up model, the Cybertruck, four years after its initial presentation.
Uber Technologies on the Rise
Uber Technologies gained 1.7% on rumors of its inclusion in the S&P 500 index after its latest positive quarterly results. Marvell Technology and Dell saw significant drops due to a better-than-expected loss for the third quarter and disappointing sales figures, respectively.
A Wait-and-See Approach
The Fed's decision to hold interest rates steady in January 2025 stems from rising inflation concerns and policy uncertainty. The Trump administration's policies and economic data play a significant role in shaping the Fed's rate decisions.
Stock Market Volatility and Sector Performance
In a rate-sensitive market, stock indices like the Russell 2000 have shown robust performance. Anticipated interest rate changes present both potential gains and losses, depending on the sector.
Gold Investments
The interest rate environment directly impacts gold prices. While lower interest rates boost gold's appeal, high inflation could negatively influence its prices. Investor sentiment is largely dependent on upcoming US inflation data and geopolitical factors.
