The S&P 500 had been tip-toeing higher since the peak in the 10-year yield in late October, signaling the end of the 10.3% correction from July 31 through Oct. 27. Following the conclusion of the Dec. 13 FOMC meeting, however, share prices surged as Fed Chair Powell intimated that while the FOMC may not have cut rates, it trimmed concerns that it would talk down the market’s dovish optimism, summarizes Sam Stovall, chief investment strategist at CFRA Research.

Powell’s comments also implied that the 25-basis point hike on July 26 was likely the last of this cycle, and that the FOMC was now discussing the timing and magnitude of rate cuts in 2024. Of equal encouragement was the admission that a soft landing for the US economy appeared to be the most likely outcome.

In response to this assessment of economic and monetary conditions heading into 2024, the S&P 500 jumped 2.5% for the week-to-date (WTD) through Dec. 14, accompanied by gains for all sizes, styles, and 10 of 11 sectors in the S&P 1500, led by financials, materials, and real estate. Consumer staples and technology posted the weakest increases, while communication services recorded the sole decline.

Digging a bit further, 90% of the 153 sub-industries in the S&P 1500 advanced in the period, led by aluminum, industrial REITs, and Office REITs, while coal & consumable fuels, insurance brokers, and reinsurance recorded the deepest declines.

CFRA sees the market continuing its climb into 2024, but advises that the market may be over-estimating the number of rate cuts for the coming year. We see the Fed starting to ease rates in Q2 and trimming by a total of 75 basis points by year-end, not the four or more cuts currently built into expectations.

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