After signaling more 2024 cuts than initially anticipated, the NAS100 experienced a rally, propelled by the Federal Reserve’s unexpected dovish tone, leading the Dow to reach an all-time high.

NAS100:
On Wednesday, the US Fed maintained interest rates at 5.25%-5.5% and revised its 2024 median rate to 4.6%, down from the previous 5.1%. This implied the possibility of at least three rate cuts or a reduction of 90 basis points. The Fed adopted a more dovish stance, citing eased inflation and moderated job gains. Market expectations, already elevated, were further supported by this outcome, with CME’s FedWatch Tool indicating a pricing in of 175 basis points of cuts for the next year. Consequently, NAS100 extended its gains, approaching new record highs at 16,770. The tech-heavy index has been driven by anticipation of Fed cuts and the Artificial Intelligence revolution, with companies like Nvidia experiencing substantial growth. These factors are expected to continue propelling the index higher in 2024. However, the central bank did not rule out further tightening, as evidenced by persistent price pressures, a tight labor market, and a robust economy. Although Chair Powell acknowledged elevated inflation, he cautioned against premature declarations of victory, signaling that the 175 basis points cuts expectation might be excessive and deviates from the Fed’s projections. Despite overbought conditions, a NAS100 pullback toward 16,178 is plausible, but significant losses threatening the EMA200 (around 16,760) appear challenging.

Dow Jones:
The Fed, as expected, maintained the policy rate at 5.25%-5.5% but surprised the market with a dovish tone, citing a slowdown in growth and eased inflation. The dot plot revealed an additional cut for 2024, totaling 75 basis points instead of the previously signaled 50 basis points in September. Additionally, the final hike mentioned in September was omitted, resulting in a year-end 2024 Fed funds rate of 4.6%, not 5.1% as previously anticipated. The 10-year real rate declined, impacting the dollar, aligning with their strong weekly correlation of 83%. The market seems to be pricing in a scenario of controlled disinflation without a significant spike in unemployment. Equities surged as Fed Chair Powell did not push back on expectations of the first rate cut in March next year. The Dow Jones Industrial Average closed at a record high, gaining 500 points. The Fed’s success is attributed to increased availability of goods and services, balancing the economy and slowing inflation without hindering demand. Supply chain issues are improving, and increased immigration after Covid has contributed to a more stable labor market. While experts anticipate a moderation in the Fed’s preferred inflation measure (PCE) with the upcoming November data, it has not yet reached the target. The Fed remains cautious, staying data-dependent and aiming to balance its monetary policy approach to avoid loosening conditions too rapidly.