The Fed keeps rates, markets celebrate

Federal Reserve Board Chairman Jerome Powell speaks during a news conference after a Federal Open Market Committee meeting on November 01, 2023 at the Federal Reserve in Washington, DC.

Kevin Dietsch | Getty Images News | Getty Images

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What you need to know today

Rates unchanged, again
The Federal Reserve kept interest rates unchanged, holding the key federal funds rate in a target range between 5.25% to 5.5%. But Chair Jerome Powell emphasized “the process of getting inflation sustainably down to 2% has a long way to go.” To that end, Powell said the central bank is keeping its decision for its December meeting open, and isn’t even thinking about rate cuts at all.

Markets cheered decision
U.S. markets rallied Wednesday as investors digested — and cheered — the Fed’s decision to hold rates steady. Asia-Pacific markets mostly followed Wall Street higher Thursday. South Korea’s Kosdaq index jumped around 4.2% even as inflation in the country hit 3.8% in October, the third year-on-year acceleration in prices. With a 1.13% gain, Japan’s Nikkei 225’s another winner for Thursday.

Bond relief
The U.S. Treasury Department will auction next week $112 billion in debt in three parts: $48 billion in 3-year notes, $40 billion in 10-year notes and $24 billion in 30-year bonds. Thereafter, the department said it’ll focus more on coupon-bearing notes and bonds. Investors are watching the auction closely because it could affect the trajectory of bond yields — already at multiyear highs recently.

Electrifying sales
October was a boom month for Chinese electric vehicle companies. Xpeng delivered 20,002 cars and Li Auto delivered 40,422 cars — both figures are new records, according to company releases. Nio saw an uptick in its October deliveries, but the 16,074 was still around 4,000 below its July deliveries. BYD remained the dominant player in the industry, selling 165,505 pure battery-powered cars last month.   

[PRO] The S&P 500(0) dream
In August, Morgan Stanley Investment Management’s Andrew Slimmon said the S&P 500 would hit 5,000 this year. Is Slimmon still sticking with his belief, even after three straight months of declines for the index? And if so, what are the stocks he would buy to capitalize on the rally?

The bottom line

In the span of a year, the Federal Reserve has turned, for stock markets, from a harbinger of doom to a beacon of hope.

Take, for instance, how markets plunged in reaction to the Fed meeting in November last year.

Yesterday, however, markets rallied after the Fed concluded its meeting. The S&P 500 advanced 1.05%, closing above the 4,200 level for the first time since Oct. 24. The Dow Jones Industrial Average gained 0.67% and the Nasdaq Composite climbed 1.64%, boosted by technology stocks like AMD and Nvidia, for its best day since Aug. 29.

Of course, the material facts between the two Fed meetings were markedly different. The Fed, as expected, left interest rates unchanged this time, compared with a 75-basis-point hike last year.

But the circumstances surrounding the Fed’s decision are different too. Recession fears gripped investors last year. Today, the Fed’s upgrading its assessment of the U.S. economy, stating that “economic activity expanded at a strong pace in the third quarter.” (By contrast, in its September statement, the Fed said the economy had expanded at a “solid pace.”)

And yet, amid that “strong pace” — a 4.9% annualized growth rate in the third quarter — are signs of moderating growth. Private payrolls increased less than expected while manufacturing activity in the U.S., according to data from the Institute for Supply Management, contracted more than forecast.

Viewed with the 3.7% core inflation in September, it’s no surprise stocks rallied: Investors are hoping for the fabled soft landing of quashed inflation without a recession.

That’s not to say Powell dispensed with hawkish rhetoric completely. He still warned that inflation’s beyond the 2% mark the Fed is targeting; that the Fed is leaving its decision for December open; that rate cuts are not on the table at all.

But when viewed against the events a year ago, it’s undeniable much progress has been made on multiple fronts. Even as investors are absorbed in the day-to-day gyrations of the market, it’s a reminder that, in the long run, things do pick up.

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