Larson Market Commentary

The markets felt evergreen last week as all five indices closed higher. For the S&P 500, this was the seventh consecutive week of gains since the end of October. While Monday and Tuesday both closed higher, it was Wednesday’s activity that stood out last week. Wednesday was accentuated by the results from the December FOMC Meeting.

The Fed voted to hold interest rates steady at 525 – 550 basis points.

However, it was the comments that came after the meeting that caught the markets’ attention.

After months of market participants wondering when and how the Fed would begin to change course on their interest rate policy, Fed Chairman Jerome Powell began to take on an accommodating tone. In his post meeting comments, he said:

“We are seeing strong growth that appears to be moderating. We’re seeing a labor market that is coming back into balance by so many measures, and we’re seeing inflation making real progress. These are the things we’ve been wanting to see. We can’t know—we still have a ways to go. No one is declaring victory. That would be premature, and we can’t be guaranteed of this progress. So, we’re moving carefully in making that assessment of whether we need to do more or not. And that’s really the question that we’re on, but of course, the other question, the question of when will it become appropriate to begin dialing back the amount of policy restraint in place, that begins to come into view, and is clearly a topic of discussion out in the world and also a discussion for us at our meeting today.”

For context, just two weeks earlier, Powell said,

“It would be premature to conclude with confidence that we have achieved a sufficiently restrictive stance, or to speculate on when policy might ease. We are prepared to tighten policy further if it becomes appropriate to do so.”

While there was still a lot of hedging in his statement on Wednesday, Powell’s comments stood as a marked shift in tone. This caused Treasury rates to drop significantly lower with the intermediate and longer end of the yield curve falling over 30 basis points to align with the yield at the end of 2022. Moreover, the CME Group’s Fed Watch Tool saw the probability of future rate increases fall off the board with the greatest likelihood of an initial rate cut taking place in March of next year.

This gave quite the gift to both the equity and bond markets. The Bloomberg Barclays Aggregate Bond index popped over two percentage points, nearly doubling the year-to-date performance in a week.

This will be the final market commentary video for the year. We would like to wish you and your loved ones a Merry Christmas and a Happy New Year.

https://www.federalreserve.gov/mediacenter/files/FOMCpresconf20231213.pdf

https://www.federalreserve.gov/newsevents/speech/powell20231201a.htm

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