Stock Market Today: Stocks higher as Fed pushes back on rate-cut bets

Stocks are looking to extend last week's Fed-induced rally, even as officials look to take some of the air out of rate-cut bets.

Dec 18, 2023 - 19:30

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Stock Market Today: Stocks higher as Fed pushes back on rate-cut bets

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U.S. equity futures nudged higher Monday, with mixed moves for both the dollar and Treasury yields, as investors brushed past Federal Reserve officials' warnings about their rate-cut exuberance.

U.S. Steel facility in Pittsburgh, PA.
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Updated at 8:45 AM EST

Goolsbee: Fed doesn't pre-commit

Chicago Fed President Austin Goolsbee, who will not have a vote in rate decisions made by the Fed's Open Markets Committee, told CNBC he's seeing "significant' improvement in terms of slowing inflation, but added that markets are pricing in more rate cuts than than Fed officials are projecting.

His comments reflect a growing effort by some Fed Presidents to challenge the interpretation of last week's press conference and remarks from Chairman Jerome Powell.

Updated at 8:23 AM EST

Steely-eyed deal

U.S. Steel X shares soared higher Monday after the group, which knocked-backed buyout proposals from three different suitors, agreed to a $15 billion takeover by Japan's Nippon Steel.

Stock Market Today

Last week's dovish assessment of the Fed's rate path, taken from its Summary of Economic Projections, calls for around three reductions in the benchmark federal funds rate next year.

That view meets, at least in part, bullish rate bets on Wall Street that have pushed Treasury yields lower and stocks higher for much of the past two months.

Fed officials have tried to push back on that assumption, with Cleveland Fed President Loretta Mester telling London's Financial Times that markets are "a little bit ahead' of the central bank's projections.

She added that the central bank is focused more on "how long do we need monetary policy to remain restrictive in order to be assured that inflation is on that sustainable and timely path back to 2%" than on the timing of rate cuts.

Mester's comments followed a similar warning from New York Fed President John Williams on Friday, who told CNBC that it was "just premature to be even thinking about" about rate cuts.

Goldman Sachs, meanwhile, is forecasting three consecutive rate cuts, starting in March, while the CME Group's FedWatch sees rates falling to between 3.75% and 4% by the end of next year.

"Powerful tailwinds of moderating inflation and a Fed pivot will continue to overwhelm moderating economic conditions and are set to push stocks higher in 2024," said Richard Saperstein, chief investment officer at New York-based Treasury Partners.

"Our message to investors is to maintain equity positions, but recognize that stocks are rocketing higher based on improving liquidity and moderating inflation versus rising earnings expectations, and market rallies off of earnings tend to be more sustainable," he added.

In the bond market, benchmark 10-year note yields, which had their biggest five-day decline since 2010 last week, were marked 4 basis points lower at 3.924% while 2-year notes were rose 2 basis points from mid-May lows to trade at 4.430%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.12% lower at 102.417, extending its December decline to around 0.92%.

On Wall Street, stocks look set for a modestly firmer open heading into the final full week of the trading year, with futures contracts tied to the S&P 500, which is up 22.9% for the year, priced for a 7 point opening bell gain.

The Dow Jones Industrial Average, meanwhile, is called 55 points higher while the tech-focused Nasdaq is set for a 15 point opening bell gain.

In overseas markets, Europe's Stoxx 600, fresh off a 10-week winning streak, the longest since April, was marked 0.12% lower. The move followed a softer-than-expected reading of German business sentiment for the final month of the year and hawkish statements from ECB policymakers.

Overnight in Asia, stocks were muted, with the MSCI ex-Japan benchmark falling 0.42% into the final hours of trading and the Nikkei 225 ending 0.64% lower in Tokyo ahead of tomorrow's Bank of Japan rate decision.