Investors cheer Fed's dovish pivot, as focus shifts to 2024 risks

Fed's dovish shift puts record highs in sight for U.S. stocks, as investors worry market may be moving too fast. Fed projects historic tightening of U.S. monetary policy is at an end.

A dovish shift from the Federal Reserve has put record highs in sight for U.S. stocks, even as some investors worry the market may be moving too fast given an uncertain outlook for the economy and corporate earnings.

The Fed held interest rates steady on Wednesday and signaled in new economic projections that the historic tightening of U.S. monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.

The message was more dovish than many investors were expecting. Plunging Treasury yields helped the S&P 500 rise nearly 1.4% on Wednesday, the biggest gain in the index on a day that the Fed issued its monetary policy statement since July 2022. The benchmark U.S. 10-year Treasury yield, which moves inversely to bond prices, fell to around 3.99% in late Wednesday trading, the lowest level in four month..

"The Fed is done raising rates, and the market could not be more thrilled to have higher conviction in that," said Matthew Miskin, co-chief investment strategist at John Hancock Investment Management.

The Fed’s view is now more aligned with that of investors - though markets remain far more dovish in their outlook.

Seventeen out of 19 Fed officials project that the policy rate will be lower by the end of 2024 than it is now - with the median projection showing a fall to 4.6% from the current 5.25%-5.50% range. That compares with a rate of 3.847% reflected in futures to the Fed’s policy rate, LSEG data showed.

With few major macroeconomic events expected for the rest of December, the S&P 500 could have the momentum to end the year by matching or exceeding the closing high it set in January 2022. The index is now less than 2% below that record of 4,796.56. The Dow Jones Industrial Average marked a record high close on Wednesday, its first since January 2022, along with shares of Apple Inc, the world's most valuable company.