In what’s seen as a resounding testament to the recent bullish sentiment in financial markets, December 13 marked a historic milestone as major global indexes surged to unprecedented heights.
The Dow Jones Industrial Average (DJIA), a bellwether for the 30 largest US-listed companies, soared to new peaks, mirroring the exuberance seen in stock markets worldwide. Joining the rally were prominent indexes in Germany, France, and India, collectively painting a picture of an overwhelmingly positive market session on the day.
As a result of this remarkable ascent, investors are now pondering whether this relentless rally signifies the commencement of a full-fledged bull market in global equities.
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What’s driving the stock market?
US stocks have been on the rise for several weeks, fueled by easing macroeconomic pressures and improved market sentiment stemming from hopes that the Federal Reserve has reached the end of its rate-hiking campaign and will begin cutting rates sometime next year.
Now, those hopes have materialized after the Federal Reserve officially announced it will keep rates unchanged at its last 2023 policy meeting, and even confirmed its plans for a 2024 dovish pivot. Hence yesterday’s surge to all-time highs.
Notably, the Fed kept its benchmark policy rate in the 5.25%-5.5% range, the highest in 22 years. But this move was largely anticipated.
The real highlight of the meeting was the central bank’s confirmation of its plans to begin cutting rates next year, with 17 of 19 officials projecting that the policy rate will be lower by the end of 2024.
More concretely, the median projection signaled a rate drop to 4.6% from the current range, but many expect the reduction will be even deeper.
So does this mean stocks are in a bull market now?
It is difficult to say that stocks have officially entered a fully-fledged bull market.
Even though stock indexes are sitting at record highs, December has historically been a favorable month for equities, and many have predicted this coming even when the sentiment was generally bearish.
However, the Fed confirming that rate cuts are on the way is concrete evidence that even the policymakers believe that macroeconomic pressures are fading, which, in turn, should provide a much more favorable environment for riskier assets like stocks and cryptocurrencies.
However, the overall 2024 outlook remains shrouded in uncertainty, with pivotal questions lingering about the feasibility of a successful “soft landing” for the US economy. Concurrently, there persists a prevailing belief that the global economy might slide into a recession in the latter part of the coming year.
These impending events serve as critical touchpoints under intense investor scrutiny, with their outcomes poised to wield substantial influence on the markets.