The Dow (+2.9%), NASDAQ (+2.8%), and S&P 500 (+2.5%) exhibited strong gains last week. These gains were broad-based, as they included nearly every asset class. Similarly, all bond asset classes were also up, as taxable bonds jumped about 2.1% and tax-free municipal bonds gained about 1.2%. The 10-year Treasury bond yield plummeted 0.32% to end the week at 3.91%, its first close below 4% since the end of July 2023.
The stock and bond markets both rallied on strong economic data, but more as a result of the Fed’s policy meeting on Wednesday. The most commonly known inflation index, Consumer Price Index (CPI), was up 3.1% Y/Y in November. That report demonstrates that inflation is easing, despite the core rate remaining at 4% and above the Fed’s target of 2%. Retail sales were also better than expected in November, showing the resiliency of the consumer.
The big market driver last week was the Fed meeting on Wednesday. As expected, they didn’t raise or lower interest rates, but they produced the “Dot Plot". The Dot Plot shows what each member of the Federal Reserve believes rates SHOULD be over the next few years. While this is not designed or intended to predict future interest rates, it shows what the Fed members are thinking , as they believe there will be three rate cuts in 2024 and four rate cuts in 2025. Needless to say, this was considered “dovish” by investors, and both the stock and bond markets reacted very favorably, driving the 10-year Treasury yield below the key 4% mark. In short, that helped fuel strong rallies as we begin to head into the slower, less active holiday season.
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