Markets rally after Fed signals pivot ahead for interest rates

Dow surged 512 & going over 37K for a new record, advancers over decliners a hefty 6-1 & NAZ climbed 200.  The MLP index was up 2 to 246 & the REIT index jumped 14 to go over 388 on lower interest rates.  Junk bond funds rose along with stocks & Treasuries had very heavy buying causing yields to plunge after the Fed's announcement.  Oil rebounded to settle over 69 & gold jumped 37 to 2030 (more on both below).

AMJ (Alerian MLP Index tracking fund)

The Federal Reserve held interest rates steady for the 3rd straight time, signaling the end of its nearly 2-year battle against high inflation as it forecast a series of cuts in 2024.  The widely expected decision left interest rates unchanged at of 5.25-5.50%, the highest level in 22 years.  But policymakers also opened the door to multiple rate cuts next year amid signs the economy is beginning to slow in the face of tighter monetary policy.  New quarterly economic projections laid out after the meeting show that a majority of Fed officials who participated in the meeting expect rates to fall to 4.6% by the end of 2024, suggesting there will be at least 3 qtr-point rate cuts next year.  Policymakers have raised interest rates sharply over the past year, approving 11 rate increases in the hopes of crushing inflation & cooling the economy.  In the span of just 16 months, interest rates surged from near zero to above 5%, the fastest pace of tightening since the 1980s.  Hiking interest rates tends to create higher rates on consumer & business loans, which then slows the economy by forcing employers to cut back on spending.  Higher rates have helped push the average rate on 30-year mortgages above 8% for the first time in decades.  Borrowing costs for everything from home equity lines of credit, auto loans & credit cards have also spiked.  Yet the rapid rise in rates has not stopped consumers from spending or businesses from hiring.  Inflation has cooled from a peak of 9.1%, but it remains well above both the Fed's 2% goal & the pre-pandemic average.

Fed leaves interest rates unchanged again amid cooling inflation

Pfizer (PFE) forecast 2024 revenue & profit below expectations, as it sees weak demand for its once-blockbuster Covid products.  PFE also raised the target of its sweeping cost-cutting plan by $500M, bringing the anticipated total to $4B.  The company expects 2024 revenue of $58.5-61.5B.  Analysts had anticipated sales of $63.2B.  Its forecast suggests revenue next year could fall or come in flat compared with 2023.  The company expects revenue of $58-61B this year.  PFE also anticipates $5B in 2024 revenue from its Covid vaccine & $3B in sales from its antiviral pill Paxlovid, for a total of $8B from Covid products.  That's far less than the $13.8B in combined 2024 sales that was expected.  “While we do not expect Covid vaccination and infection rates to change materially in 2024 versus this year, we have set our Comirnaty and Paxlovid 2024 revenue expectations lower,” CFO Dave Denton said, referring to the company's Covid products.  The pharmaceutical giant also forecast adjusted EPS of $2.05-2.25.  Analysts had expected adjusted profit of $3.16.  Notably, PFE expects a 40¢ per share hit from financing costs related to its $43B acquisition of cancer drug developer Seagen, which it plans to formally close tomorrow.  The stock dropped 1.93.

Pfizer shares fall as 2024 revenue and profit forecast disappoints

Homeowners looking to refinance are finding savings after mortgage rates dropped again last week.  The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726K or less) decreased to 7.07% from 7.17%, with points falling to 0.59 from 0.60 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association (MBA), the lowest level since Jul.  “Mortgage rates dropped last week, as incoming data point to a slowing economy and support a pivot by the Federal Reserve to begin cutting rates next year,” said Mike Fratantoni, MBA senior VP & chief economist.  As a result, applications to refinance a home loan increased 19% last week from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index.  Refinance demand was 27% higher than the same week one year ago.  “Borrowers who had seen rates near 8% earlier this fall are now seeing some lenders quote rates below 7%. Refinance volume picked up in response to this drop in rates, with a particularly notable increase for FHA and VA refinance applications,” Fratantoni added.  Applications for a mortgage to purchase a home rose 4% for the week but were still 18% lower than the same week one year ago.

Mortgage refinance demand jumps 19% after rates hit lowest level since July

Gold jumped as much as 1.4% after the Federal Reserve gave its clearest signal yet that its aggressive hiking campaign is finished, forecasting a series of cuts next year.  The central bank held interest rates steady for a 3rd meeting, with officials deciding unanimously to leave the target range for the benchmark federal funds rate at 5.25-5.50%, the highest since 2001.  Policymakers penciled in no further interest-rate hikes in their projections for the first time since Mar 2021 & they expect to lower rates by 75 basis points next year, a sharper pace of cuts than indicated in Sep's projections.  Treasury yields & the $ plunged in response, sending bullion bouncing.  Swap contracts referencing Fed meeting dates repriced to levels consistent with about 130 basis points of easing over the next 12 months, compared with about 116 basis points earlier today.  The precious metal had retreated below $2000 an ounce after touching a record last week on bets for rapid monetary loosening by the Fed in 2024.  Spot gold added 1.4% to $2006 an ounce

Gold Jumps Above $2,000 as Fed Pivots Toward Rate Cuts in 2024

Oil futures gained, a day after posting their lowest settlement in almost 6 months.  With a weekly draw in US crude supplies reported by the Energy Information Administration & the recent selloff in oil, prices may stabilize at current levels.  Jan West Texas Intermediate crude rose 86¢ (nearly 1.3%) to settle at $69.47 a barrel.

Oil futures finish higher a day after ending at a nearly 6-month low

In the Fed's release was the central bank's Summary of Economic Projections, which includes central bankers projections for interest rates next year.  The Fed now sees 75 basis points of rate cuts coming in 2024, which accounts for one more rate cut than had been projected in Sep.  It will take time to see lower rates, there are wars going on & many US consumers feel they are in recession.  For the time being investors are in command & very optimistic.

Dow Jones Industrials