The US stock market ended the week on a high note, as investors cheered the prospect of rate cuts by the Federal Reserve in 2024. The Dow Jones Industrial Average jumped by almost 400 points on Friday, while the S&P 500 and the Nasdaq Composite also posted solid gains1.
The market rebounded after a sharp sell-off on Thursday, when the Fed
announced that it would start tapering its bond-buying program in December and signaled that it could raise interest rates three times next year to combat inflation. The Fed also revised down its economic growth forecast for 2024, citing the impact of the Omicron variant of Covid-19 and supply chain disruptions2.
However, some market pros are cautiously optimistic about the outlook for stocks, even as geopolitical, Fed, and recession risks loom in 2024. They argue that the Fed’s policy shift is a response to the strong recovery of the US economy, and that lower rates could boost consumer spending and corporate earnings. They also point out that the market has historically performed well in the year after the first rate hike, as long as inflation remains under control3.
On the other hand, some analysts warn that the market is entering deep overbought territory, and that some stocks could be due for a pullback. They also note that the Fed’s rate cuts could be a double-edged sword, as they could signal that the economy is tipping into recession next year. They advise investors to be selective and focus on quality companies with strong fundamentals and growth prospects4.
The stock market news this week also featured some notable earnings reports from major companies, such as Walmart, Cisco, Nvidia, and Alibaba. Walmart beat expectations and raised its full-year guidance, but its shares fell as investors worried about rising costs and margin pressures. Cisco also topped estimates, but its stock dropped as it warned of supply chain challenges and lower demand from China. Nvidia delivered a blowout quarter, but its shares slipped as it faced regulatory hurdles for its planned acquisition of Arm. Alibaba reported a decline in revenue and profit, but its shares soared as it announced a $15 billion share buyback program5.