Broker Check

Weekly Market Update December 15, 2023

December 17, 2023

DJIA 37,305 +2.9%, NASDAQ 14,814 +2.8% S&P 500 4,719 +2.5%, US Ten Year 3.9%, Oil $71.66

This week marked a pivotal moment for investors across all asset classes. Unlike previous significant events tied to geopolitics, mergers, or earnings, the Federal Reserve's messaging shift, led by Jerome Powell, took center stage. Despite the expected decision to keep interest rates unchanged, Powell's remarks about the ongoing battle against inflation and signaling the peak rate for the current cycle triggered a market rally. The shift from a "higher for longer" stance to potential rate cuts next year resulted in equity gains, lowered bond yields, and revived previously overlooked stock market sectors.

Assets like regional banking ETFs surged by 8.1%, small caps by 6%, real estate by 6%, and energy by nearly 3% for the week. Companies with substantial debt benefited, as lower rates promised more manageable future debt payments. The altered outlook, favoring stocks, allows investors to reconsider Treasury ladder investments and potentially redirect funds into equities. Sectors projected to outperform in the coming year include Small Caps, Financials (especially regional banks), Industrials, and companies showcasing profitability and efficiency from the AI revolution.

The Federal Reserve's "dot plot" forecasts three potential rate cuts next year, surpassing the two cuts estimated in September. Contrarily, the market anticipates up to six rate cuts in 2024, as shown in the chart below, with the median projections of the Fed's target range.

If your accounts involve Treasury ladders, consult your advisor. Depending on your situation, it may make sense to reallocate funds into equities as bonds mature.