By Stephen Culp and Marc Jones
NEW YORK (Reuters) – U.S. stocks extended their rally and benchmark Treasury yields dropped to their lowest since July on Thursday as signals from the U.S. Federal Reserve that the tightening cycle has ended and rate cuts can be expected in 2024 continued to fuel investor euphoria.
The dollar hit a four-month low and all three major U.S. stock indexes were in positive territory the day after the Fed’s much anticipated policy decision.
“Yesterday’s move was obviously in reaction to Powell coming out significantly less hawkish than people had anticipated,” Michael Green, chief strategist at Simplify Asset Management in New York. “He ended up as a cheerleader for the path of rate cuts that the market was beginning to price in. He dramatically changed his language.”
That pivot was enough to send the blue-chip Dow to an all time closing high, suggesting the blue-chip average entered a bull market in September 2022 and putting the three major indexes on course for their seventh straight week of gains.
MSCI’s 47-country world stocks index added 1% to its stellar 13% gain over the last 1-1/2 months.
“It’s very hard to argue that we’re not in the bull market when markets are within a few points of all-time highs,” Green added. “The best performing sectors are last year’s losers which rallied sharply yesterday and continue to rally today.”
In a busy day for central banks, the European Central Bank (ECB) also held interest rates steady but pushed back against the notion of rate cuts. The Bank of England echoed the ECB, insisting interest rates would be elevated “for an extended time.
Elsewhere, the Swiss National Bank held rates firm but lowered inflation forecasts, while Norway’s central bank surprised with a rate hike.
On the economic front, U.S. retail sales unexpectedly rebounded in November, further evidence of consumer resilience which has market participants increasingly betting on a soft landing for the U.S. economy.
The Dow Jones Industrial Average rose 72.28 points, or 0.19%, to 37,162.52, the S&P 500 gained 13.51 points, or 0.29%, to 4,720.6 and the Nasdaq Composite added 29.37 points, or 0.2%, to 14,763.34.
European shares carried Wall Street’s Wednesday rally forward, as the dovish Fed offset the ECB’s dismissal of rate cut speculation.
The pan-European STOXX 600 index rose 0.63% and MSCI’s gauge of stocks across the globe gained 0.90%.
Emerging market stocks rose 1.95%. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 1.94% higher, while Japan’s Nikkei lost 0.73%.
Treasury yields slid to multi-month lows as bond investors braced for rate cuts in 2024.
Benchmark 10-year notes last rose 24/32 in price to yield 3.945%, from 4.033% late on Wednesday.
The 30-year bond last rose 55/32 in price to yield 4.09%, from 4.184% late on Wednesday.
The greenback touched a new four-month low against a basket of world currencies on hopes of lower borrowing costs in the year ahead as suggested by the Fed.
The dollar index fell 0.72%, with the euro up 0.88% to $1.0969.
The Japanese yen strengthened 0.54% versus the greenback at 142.13 per dollar, while Sterling was last trading at $1.2722, up 0.82% on the day.
Oil prices surged in opposition to the weaker dollar after the International Energy Agency (IEA) lifted its oil demand forecast for next year.
U.S. crude rose 3.33% to $71.78 per barrel and Brent was last at $76.97, up 3.65% on the day.
Gold prices advanced in opposition to the weakening dollar.
Spot gold added 0.6% to $2,038.29 an ounce.
(Reporting by Stephen Culp; Additional reporting by Marc Jones, Editing by William Maclean)
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