US30 – Record highs in the Dow after the Fed overdelivers

• Fed signals three rate cuts in 2024
• ECB and BoE to announce decisions shortly
• Dow hits record highs after the Fed

The most hotly anticipated central bank meeting of the year did not disappoint on Wednesday, with the Fed potentially delivering this year’s Santa rally.

I don’t think many will have expected the Fed to go as far as it did in forecasting three rate cuts next year only three months after suggesting the tightening cycle is not over. But clearly, it’s not just investors that have been impressed with the data we’ve seen so far in the fourth quarter and now they’re getting more carried away than before.

There’s been a lot of debate in recent weeks about whether investors are getting ahead of themselves, too optimistic about how quickly the Fed will cut rates but the message from the central bank is that is not the case. And in typical fashion, investors have now gone further, pricing in six rate cuts next year starting in March.

That’s also forced investors to reassess whether they’re in fact too pessimistic with other central banks too, with the ECB now expected to cut rates by 150 basis points over the next 12 months and the BoE between 100 and 125 basis points.

Both now have a lot to live up to today and Christine Lagarde, in particular, may not be thanking her US counterparts for whipping investors up into a frenzy right before their announcement and press conference. A repeat performance from the ECB could leave investors going into the end of the year in a much more festive mood.

New record highs in the Dow

Markets got an early festive treat from the Fed, with the Dow hitting fresh record highs on the back of the Fed announcement almost two years after it last achieved that feat.

US30 Daily

Source – OANDA

Now that it’s in uncharted territory, momentum indicators will be much more useful as we don’t have past levels to look to. And we are seeing some sign of exhaustion occurring in the MACD histogram, although not yet in the moving averages or stochastic.

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