Traders were ebullient last year about the possibility of a string of cuts to rates, when they sent stocks to dozens of all-time highs, only to rein in their expectations more recently. The Fed itself has indicated it may cut rates only two times this year instead of the four it had earlier projected, and some traders have even considered the possibility of future hikes to rates.
Wednesday’s update quashed speculation about hikes in the near term, and Treasury yields eased in the bond market on growing hopes for coming cuts. The yield on the 10-year Treasury dropped back to 4.65 per cent from 4.79 per cent late Tuesday, which is a considerable move. It had largely been screaming higher since September, when it was below 3.65 per cent.
The two-year Treasury yield, which more closely tracks expectations for the Fed’s upcoming actions, fell to 4.26 per cent from 4.37 per cent.
On Wall Street, bank stocks helped lead the way after several reported stronger profits for the last three months of 2024 than analysts expected.
Wells Fargo jumped 6.7 per cent, Citigroup rallied 6.5 per cent and Goldman Sachs gained 6 per cent. They’re among the first big US companies to report their results for the end of 2024, and even more focus may be on them than usual.
When Treasury yields are climbing and bonds are paying more in interest, it cranks up the pressure on stock prices by peeling investors away from stocks and into bonds. To make up for it, stock prices typically either have to fall or corporate profits have to rise more strongly.
Stocks of companies that would get a big benefit from lower interest rates were also toward the front of the market.
Builders FirstSource, a supplier of countertops and other building materials, rose 4.7 per cent, for example. It and other housing-related companies would get a boost from easier mortgage rates.
All told, the S&P 500 rose 107.00 points to 5,949.91. The Dow Jones gained 703.27 to 43,221.55, and the Nasdaq composite jumped 466.84 to 19,511.23.
The encouraging US inflation data also helped to perk up stock indexes abroad by lowering the pressure on the global bond market.
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The FTSE 100 in London rallied 1.2 per cent. UK markets have been under pressure because of a jump in bond yields amid worries about a sluggish economy and the country’s finances.
Indexes also rose 0.7 per cent in France and 1.5 per cent in Germany. They were more subdued in Asia, where trading closed before the release of the US inflation data.
South Korea’s Kospi was nearly unchanged after law enforcement officials detained impeached President Yoon Suk Yeol on Wednesday in connection with his failed declaration of martial law last month.
AP
