Wall Street experiences mixed emotions as the Fed prepares to announce its final interest rate for 2024 and project into the new year. While optimism for 2025 remains, recent market performance and rising Treasury yields indicate growing uncertainty.
Despite extreme optimism about 2025, Wall Street is feeling a bit anxious as the Federal Reserve prepares to announce its final interest rate of 2024 and offer a glimpse into next year's outlook. The S&P 500 has experienced a 9-day losing streak, the longest negative run since 1978, but remains close to record highs set earlier this month. While the S&P 500 remains near its recent peaks, this strength is largely concentrated in a few large-cap companies.
The equal-weighted S&P 500 has fallen more than 4% from its record on December 2nd, and the small-cap Russell 2000 has also declined. Treasury yields have surged sharply in the past two weeks, even as U.S. industrial production and retail sales (excluding autos) missed forecasts for last month. This increase in anxiety at the year-end contrasts with the bullish new year forecasts. The CBOE volatility gauge has moved back above 15 this week for the first time in a month. Ten-year Treasury yields remain above 4.4%. Although the Fed is almost certain to announce another quarter-point rate cut to a new range of 4.25% - 4.5% later on Wednesday, its guidance on what happens next year and its updated projections from individual policymakers will be closely watched by markets. The Fed's most recent quarterly projections put the end-of-2025 rate another 100 basis points lower at 3.4%, but markets currently doubt this and implied rates for the end of next year are as high as 3.90%. How much the Fed revises this view later on Wednesday will be crucial, with investors also focusing on where the policymaking committee sees the long-term neutral rate. Fed officials are widely expected to raise this long-term policy rate view above 3% for the first time in eight years, effectively raising the bar for what it considers neutral and below which the central bank would be deliberately stimulating the economy. With such a 'hawkish cut' now anticipated and Treasury yields pumped up, the dollar has held firm on Wednesday as well
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