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Wall Street Soars to Record Heights: Fed’s Rate Cut Announcement Ignites Market Frenzy

Market Update - Daniel Ang The Accidental Trader Traders Academy International 10

In a pivotal move, the US Federal Reserve’s announcement to hold interest rates steady, coupled with hints at a significant rate cut in 2024, has sparked a major upswing in equity markets, significantly impacting the Dollar and various other key financial indicators.

Key Points:

  • 📈 Dow Jones Hits Record High: Wall Street celebrates as the Dow Jones Industrial Average achieves its first record close since plunging into bear territory 15 months ago, driven by a resilient US economy and ebbing inflation.
  • 💹 S&P 500 and Nasdaq Reach Yearly Peaks: The S&P 500 and Nasdaq mark fresh closing highs for the year, with year-to-date rises of 22.6% and 40.7%, respectively.
  • 💵 Dollar Under Pressure: Post-Fed decision, the Dollar Index tumbles to its lowest since November 30, amplifying gains in EUR/USD and causing a notable decline in USD/JPY.

Amid a bustling financial environment, Thursday, December 14, 2023, marked a momentous day for Wall Street. The US Federal Reserve’s decision to keep interest rates unchanged, a move widely anticipated, has been overshadowed by its surprising signal of a potential 75-basis-point rate cut in 2024. This announcement sent equity markets skyrocketing, with the Dow Jones Industrial Average notching a record close for the first time since sliding into bear territory 15 months prior.

The market’s response was nothing short of ecstatic. Buoyed by prospects of a robust US economy, diminishing inflation, and strong corporate earnings, the Dow rallied impressively. In November alone, it achieved its most significant monthly gain in over a year, soaring by 8.8%. The euphoria was not confined to the Dow; the S&P 500 and Nasdaq also reached fresh closing highs for the year. The S&P 500’s year-to-date increase stands at a remarkable 22.6%, while the Nasdaq has surged by an impressive 40.7%.

However, the ripple effect of the Fed’s decision and future rate cut plans has put the Dollar under significant pressure. The Dollar Index, a key barometer of the currency’s strength, plunged to 102.89, marking its lowest point since November 30. This decline was reflected in major currency pairs, with EUR/USD climbing by 0.80% to 1.0882, reaching its highest level since December 1. Meanwhile, USD/JPY witnessed a substantial drop of 1.67% to 143.03, hitting its lowest since December 8.

The focus now shifts to other central banks, with the European Central Bank (ECB) and the Bank of England (BoE) expected to announce their policy decisions soon. While both are anticipated to hold rates steady, all eyes are on the Bank of Japan (BoJ) ahead of its monetary policy meeting on December 18-19. Despite earlier expectations of an end to negative interest rates, recent reports suggest that BoJ officials may not be in a hurry to make significant changes.

In commodities, gold and silver prices surged, benefiting from the Fed’s signal to end its rate hike cycle. Spot gold rose by 1.3% to $2,004.79 per ounce, while COMEX gold futures edged up by 0.2%. Silver also saw a notable increase of 2.5%. Crude oil, on the other hand, experienced a rollercoaster ride, with West Texas Intermediate (WTI) battling to stabilize near the $70 mark after a significant dip.

The Fed’s announcement has also stirred the digital assets market. Cryptocurrencies such as Bitcoin (BTC/USD), Ethereum (ETH/USD), Solana (SOL/USD), Cardano (ADA/USD), and Dogecoin (DOGE/USD) all rallied, reflecting the broader impact of the Fed’s policy stance across various asset classes.

As the week closes, investors are bracing for heightened volatility, particularly with the approach of ‘triple witching day’ – a term referring to the quarterly expiry of option contracts for stocks, futures, and options on futures. This event, involving around $5 trillion in notional values, is set to add an extra layer of complexity to an already dynamic market environment.

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