On Monday, the Dow Jones Industrial Average surged by 0.55% to reach a new peak at 41,622.08, in line with the S&P 500’s 0.13% increase, settling at 5,633.09. Analysts suggested that should this upward trajectory persist, the S&P 500 may reach a new record high later this week.
The surge came as investors are closely monitoring the Federal Reserve’s potential interest rate cuts, with the likelihood of a cut being assessed at over 50%.
Meanwhile, the Nasdaq Composite declined by 0.52% to close at 17,592.13, with its performance dragged down by tech stocks.
Futures tracking the fed funds rate, which gauges the cost of unsecured overnight bank loans, have indicated an approximately 60% probability of a 50 basis-point interest rate reduction by the Federal Reserve on Wednesday, as per LSEG calculations.
This probability has risen from 45% last Friday and 25% following the release of a U.S. consumer price index report that was in-line with expectations last week.
The Federal Reserve is expected to commence a two-day policy meeting starting on Tuesday, with widespread anticipation of a reduction in the current overnight interest rate benchmark ranging between 5.25% to 5.50%.
Market expectations have shifted between a 50 and 25 basis-point rate cut in recent days. Rate futures for the year 2024 have factored in nearly 120 basis points in easing and around 250 basis points in cuts by September 2025.
Former New York Fed President Bill Dudley’s remarks advocating for a substantial rate reduction, along with reports from the Wall Street Journal and Financial Times suggesting a 50-basis-point cut remains an option, have influenced this change in market sentiment.
Meanwhile, Boris Kovacevic, the Global Macro Strategist at Convera in Vienna, highlighted that whether the Federal Reserve opts for a 50 or 25 basis-point rate cut may not have significant implications in the long run due to the lag in effects and transmission mechanism. However, the decision holds importance in terms of the Fed’s desired perception.
