Stocks Hold Gains After Big Rally on Fed Rates

Wall Street steadied after a blockbuster rally, with traders betting the Federal Reserve will start cutting rates next year — while expecting policymakers to lean against the recent easing in financial conditions.

After notching its best weekly rally of 2023, the S&P 500 edged only slightly higher. The gauge still headed toward its sixth straight advance in a rebound that’s been also attributed to oversold technical conditions and positioning.

The beaten-down mega-cap space drove gains on Monday. Treasury 10-year yields climbed seven basis points to 4.65%, halting a recent slide. The dollar was little changed.

A raft of Fed officials — including Chair Jerome Powell — is slated to speak over the next few days. Traders are pricing in more than 100 basis points of Fed rate cuts by the end of next year from an expected peak rate of 5.37%, swaps data show.

They have brought forward their predictions for the first cut to June from July following the November Fed policy decision and the jobs report.

“Fed is DONE DONE DONE,” wrote Andrew Brenner, head of international fixed income at NatAlliance Securities. “June is a done deal for a cut, while the markets are building in four rate cuts for next year — expect the Fed to push back on that, if nothing else for optionality. Powell will try to claw back some of the easing of financial conditions.”

Best Week in a Year

The S&P 500’s best week in a year was just a bear-market rally, according to Morgan Stanley’s top-ranked strategist. Technical and fundamental support is missing, wrote Michael Wilson in a research note Monday.