What’s Behind the Market Movement?
All three indexes are set to end the week with gains of over 2%. The Dow industrials have achieved back-to-back record closes and appear poised for another one today. The recent surge in stock market interest is largely driven by the outcome of this week’s Federal Reserve meeting. In a surprise to investors, officials indicated that interest rates have peaked and outlined plans for rate cuts in 2024.
Meanwhile, the S&P 500 is only 1.6% away from its previous record close in January 2022. The bond market has also seen positive momentum this week, with the yield on the 10-year Treasury note hovering around a July low of 3.91%.
However, caution remains as there is $6 trillion of idle cash in money market funds, potentially ready to enter the stock market. This factor alone should keep short sellers on their toes.
Potential Volatility on “Triple-Witching” Friday
Today is a “triple-witching” Friday, which could result in increased market volatility. Options contracts tied to over $5 trillion worth of stocks, exchange-traded funds, and indexes are set to expire. Additionally, money managers will need to finalize changes to their holdings as the quarterly rebalancing of the S&P 500 and Nasdaq-100 takes place after the market closes.
In global markets, German bunds experienced a decline, and the euro weakened after disappointing data from Germany and France. Germany’s December composite purchasing managers index fell to a weaker-than-expected 46.7, while French PMI data also disappointed with a decline to 43.7.
On the other hand, Hong Kong stocks climbed over 2% after the People’s Bank of China injected fresh money into the economy, providing $112 billion in one-year loans to commercial lenders.
While market reactions have been positive overall, there is a consensus that further decisive actions may be necessary. Even with early signs of potential improvement, caution is advised.