A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street’s S&P500 looks poised to test 6,000 for the first time as the Federal Reserve underscored a post-election stock surge with its second interest rate cut of the year on Thursday and a nod to more.
Overseas, Friday’s focus was on China’s widely expected debt-raising stimulus plans – although the readout was these were in line with prior indications and China’s yuan, bond yields and stocks all edged lower.
Already lifted to record highs by this week’s quick and decisive election results and the prospect of President-elect Donald Trump’s promised tax cuts, the S&P500’s 25% year-to-date gains are the biggest by this stage of the year in almost 30 years.
December S&P stock futures crossed the 6,000 mark for the first time on Thursday and tried to retain a foothold there overnight. The VIX “fear index” of implied equity volatility probed below 15 for the first time in over a month.
Although the final results are still awaited, it now seems all but certain Trump’s Republican party will have a “clean sweep” of Congress too – bolstering tax cutting speculation alongside his tariff raising pledges.
But the Fed’s expected quarter-point rate cut late yesterday also helped calm restive Treasury markets as Chair Jerome Powell indicated further easing was in store even though the economy has strengthened and core inflation remains elevated.
Fed futures now see a 90% chance of another quarter point cut next month and almost 100 basis points of easing are priced through the end of next year. Ten-year U.S. Treasury yields slipped back below 4.3% on Friday and Treasury volatility gauges plunged back to their lowest in a month.
Powell indicated that as long as encouraging disinflation trends persisted the Fed would continue a gradual process of getting interest rates back to a neutral level well below current levels and said it would not react to speculation about government policy shifts until concrete plans were presented.
But in an intriguing press conference exchange about whether Trump would allow him to remain as Fed Chair, Powell insisted he would not step down a year early even if asked to do so. “Not permitted under the law,” he replied.
Earlier on Thursday CNN quoted a Trump advisor saying Powell would be allowed to serve as Chair until his term expires in May 2026 but also that Trump was considering either former Fed Governor Kevin Warsh, a persistent Fed critic, or former White House economist Kevin Hassett as replacements.