The S&P 500 surged to a fresh record high ahead of the Federal Reserve’s much-anticipated interest-rate decision, as investors eagerly awaited insights into how persistently high inflation might shape potential rate adjustments throughout the year.
On Tuesday, the benchmark index climbed 0.6%, buoyed by gains in 10 of its 11 sectors. Meanwhile, the Dow Jones Industrial Average soared around 320 points, or 0.8%, while the tech-heavy Nasdaq Composite advanced by 0.4%.
Market participants are widely anticipating that the central bank will maintain interest rates at their current level following the conclusion of its two-day policy meeting on Wednesday. Instead, investors will closely scrutinize the Fed’s latest interest-rate and economic forecasts for hints about its stance on inflation and potential rate cuts.
In December, Fed officials projected that a key inflation measure would decline from slightly above 3% at the end of 2023 to just below 2.5% by the end of the current year. However, recent inflation data has surpassed expectations, leading investors to closely monitor whether the Fed still anticipates three rate cuts in 2024 or has revised its projections to just two. Additionally, market participants will be keenly observing Fed Chair Jerome Powell’s news conference for indications about the timing of the first potential rate cut, with futures markets currently pricing in the possibility of a cut as early as June.
Interest-rate futures markets are currently pricing in three rate cuts by the Fed in 2024, reflecting investors’ expectations of monetary policy easing.
Earlier this month, Powell suggested to lawmakers that the central bank was nearing the point where rate cuts could be considered. Market strategist Quincy Krosby noted that investors’ optimism about potential rate cuts has been a driving force behind the market’s upward trajectory on days when gains are observed.
Since the beginning of the year, the S&P 500 has recorded a gain of over 8%, reflecting investors’ optimism about the economic outlook.
Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, pointed out that while inflation hasn’t receded as rapidly as expected, it has generally trended lower, providing support for the possibility of a rate cut later in the year.
Against this backdrop, individual stocks experienced notable movements on Tuesday, with American depositary receipts of Unilever climbing 2.8% following the announcement of its intention to spin off its ice-cream unit, which includes the popular brand Ben & Jerry’s.
In the commodities market, front-month Brent crude futures contracts rose by 0.6% to $87.38 a barrel, driving gains in energy shares and lifting the sector by 1.1% within the S&P 500.
Meanwhile, the yield on the benchmark 10-year Treasury note edged down to 4.296% from Monday’s level of 4.339%, as yields and prices move inversely.
Internationally, the yen weakened against the dollar after the Bank of Japan terminated its era of negative interest rates, raising its key policy rate to at least zero. In response, Japan’s Nikkei 225 index surged by 0.7%, surpassing the 40,000 mark.
In Europe, the pan-continental Stoxx Europe 600 index rose by 0.3%, while Hong Kong’s Hang Seng index declined by 1.2%.