Stock Market Today: December 14, 2023

Introduction

The stock market on December 14, 2023, showed positive signs as investors analyzed the Federal Reserve’s recent interest rate decision. The benchmark indexes, including the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite, all experienced gains. The market rally was driven by the Fed’s projection of additional rate cuts in 2024, providing investors with confidence. Additionally, the oil market saw an increase in prices, while the Swiss National Bank left interest rates unchanged. This article will delve into the details of the stock market’s performance, the impact of the Federal Reserve’s decision, and other significant events on December 14, 2023.

Stock Market Rally Continues

On December 14, 2023, the stock market showed a positive trajectory, with the major indexes experiencing gains. The S&P 500, Dow Jones Industrial Average, and Nasdaq Composite all rose around 1.3% following the Federal Reserve’s interest rate decision. The Dow Jones Industrial Average reached a record high, surpassing 37,000 for the first time ever. This rally in the stock market was fueled by the Fed’s indication of additional rate cuts in 2024, exceeding previous projections. The Dow Jones Industrial Average, in particular, has seen significant growth, rising over 8% in the past month.

Federal Reserve Holds Interest Rates Steady

The Federal Reserve’s interest rate decision on December 14, 2023, was widely anticipated by investors. The central bank chose to maintain its benchmark interest rate in a range of 5.25%-5.50%, the highest level in 22 years. Alongside this decision, the Federal Reserve released its Summary of Economic Projections, which includes forecasts for interest rates in the upcoming year. The Fed’s projections now indicate 75 basis points of rate cuts in 2024, one more cut than previously expected. This dovish stance from the Federal Reserve provided a boost to the stock market, as investors interpreted it as a sign of continued support for economic growth.

Oil Prices Rebound

Oil prices experienced an upward trend on December 14, 2023, after hitting their lowest levels since June. The market evaluated the COP28 deal, which aimed to transition away from fossil fuels, and assessed its impact on the oil industry. West Texas Intermediate (WTI) and Brent crude futures both increased by approximately 1%, trading at around $69 and $74 per barrel, respectively. This rebound in oil prices can be attributed to the market’s assessment of the COP28 deal and its potential implications for the future of the oil industry.

Swiss National Bank Maintains Interest Rates

The Swiss National Bank decided to keep its benchmark interest rate unchanged at 1.75% on December 14, 2023. This decision aligns with market expectations. The central bank has gradually increased rates from negative 0.75% over the past 18 months. The interest rate on sight deposits was also maintained at 1.75%. The Swiss National Bank’s cautionary stance reflects its assessment of key indicators of inflation persistence, indicating that rates are likely to remain restrictive for an extended period of time.

Market Broadening: A Legitimate Bull Market

The stock market’s rally in recent months has raised questions about the market’s health, particularly due to its dependence on a few tech stocks. However, the Federal Reserve’s projections of additional rate cuts in 2024 have led to a broadening of the market rally. Sectors that had previously lagged, such as Financials, are now experiencing gains of approximately 10% over the past month. This broadening of the market rally indicates a legitimate bull market, as it encompasses a wider range of sectors. Investors view this as a positive sign for the market’s continued growth.

Federal Reserve Chair Jerome Powell’s Remarks

Federal Reserve Chair Jerome Powell’s remarks on December 14, 2023, provided insights into the central bank’s perspective on economic growth and interest rates. Powell acknowledged that strong economic growth is not inherently problematic but could pose challenges if it makes it difficult to achieve the Fed’s goals, such as maintaining stable inflation. Robust economic growth could also keep the labor market strong and exert upward pressure on inflation, potentially necessitating further interest rate hikes. Powell’s remarks highlighted the Fed’s commitment to carefully assess economic conditions and adjust monetary policy accordingly.

Market Reaction to the Federal Reserve’s Projections

The Federal Reserve’s Summary of Economic Projections revealed a downward revision in inflation expectations. The central bank now anticipates core Personal Consumption Expenditures (PCE) to fall to 2.4% in 2024, compared to the previous projection of 2.6%. This revision suggests that the Fed’s preferred inflation gauge is likely to come in lower than initially expected. In response to this projection, the Federal Reserve adjusted its forecast for rate cuts in 2024, with expectations of 75 basis points worth of cuts. The market interpreted these projections as a signal for potential rate cuts and reacted positively, leading to gains in the stock market.

Investor Expectations on Rate Cuts

Following the Federal Reserve’s projections of additional rate cuts in 2024, investor expectations shifted. The market now places a higher probability, approximately 60%, on a rate cut by the end of the March meeting. This represents a significant increase from the previous expectation of a 47% chance of a rate cut. The market sentiment suggests that investors anticipate rate cuts to occur earlier than initially anticipated. These expectations will continue to influence market dynamics and investor decisions as they assess the Federal Reserve’s stance on interest rates.

Record Highs in Sight

Investors are closely monitoring the stock market’s performance as it approaches potential record highs. The Dow Jones Industrial Average, currently at 36,577.94, is less than 1% away from its record closing high of 36,799.65. Similarly, the S&P 500, at 4,643.70, is just over 3% away from its closing record high of 4,796.56. The Nasdaq Composite, at 14,533.40, is approximately 10% away from its record high of 16,057.44. The market’s proximity to these record highs reflects investor optimism and raises the possibility of achieving new milestones in the near future.

Key Stock Movements

Several individual stocks made notable moves on December 14, 2023. Pfizer (PFE) experienced a significant drop of approximately 8% after lowering its full-year 2024 earnings per share forecast by $0.40 below previous estimates. Tesla (TSLA) shares fell around 3% as the company announced a recall of more than two million vehicles due to concerns about its autopilot driver-assistance system. Etsy (ETSY) also saw a decline of over 5% after announcing an 11% reduction in its workforce. On the other hand, United States Steel (X) witnessed a rise of approximately 5% following reports of multiple bids to acquire the company, including an offer exceeding $40 per share from Cleveland-Cliffs (CLF).

Market Volatility and the Federal Reserve

Historical analysis indicates that the stock market’s movements tend to intensify after the Federal Reserve’s policy meetings. The period following 2:30 p.m. ET, when Federal Reserve Chair Jerome Powell holds a press conference, often sees increased market volatility. Investors will closely monitor Powell’s comments, particularly regarding the timing of potential rate cuts, to assess the market’s future trajectory. Understanding the relationship between the Federal Reserve’s decisions and market behavior is crucial for making informed investment decisions.

Inflation Update and the Federal Reserve

Recent data from the Bureau of Labor Statistics revealed that producer prices in November increased less than expected. Core Producer Price Index (PPI), excluding volatile food and energy categories, remained flat compared to the previous month. Economists had anticipated a 0.2% increase. On a yearly basis, core prices rose by 2%, slightly below estimates of a 2.2% increase. This promising inflation news aligns with the Federal Reserve’s goal of maintaining stable inflation. Lower-than-expected PPI could result in adjustments to the Fed’s inflation estimates for 2023 and potentially lead to more interest rate cuts in 2024.

Conclusion

The stock market on December 14, 2023, showcased positive momentum following the Federal Reserve’s interest rate decision. The market responded favorably to the Fed’s projection of additional rate cuts in 2024, leading to gains in the major indexes. Oil prices rebounded from their recent lows, and the Swiss National Bank maintained its interest rates. The broadening of the market rally signaled a legitimate bull market, encompassing various sectors. Investors closely monitored Federal Reserve Chair Jerome Powell’s remarks, which shed light on the central bank’s perspective on economic growth and interest rates. As the market approaches potential record highs, investor expectations and stock movements continue to shape market dynamics.