FOMC
Image courtesy of Shutterstock

Stocks and Bonds Surge After December FOMC Meeting

By:Christopher Vecchio, CFA

Final rate hike for 2023 nixed, number of 2024 cuts boosted to three and projected cuts for 2025 held at four

  • The Federal Reserve held its main rate steady at 5.25-5.5%, as expected (100% chance, per CME’s FedWatch Tool).
  • The rate hike cycle is officially finished, and markets foresee the first rate cut coming as early as March 2024.
  • Stocks and bonds were trading near their highs of the day, week and month at the time this report was written.

Data Reaction Intraday Performance
Fig. 1: Intraday price percent change chart for /ES, /NQ, /ZN, /ZB, /GC

Market Update: S&P 500 up 3.67% month-to-date

It’s official: The Federal Reserve rate hike cycle is finished. The December Federal Open Market Committee (FOMC) meeting yielded exactly what was expected when policymakers left the main rate on hold at 5.25-5.5%.

However, the FOMC nixed a final hike from the 2023 projection, boosted the cuts anticipated in 2024 to three and left the cuts projected for 2025 at four. In total, 175 basis points’ (bps’) worth of rate cuts are anticipated over the next two years. That’s not quite as much as markets continue to anticipate—five cuts are discounted through the end of 2024, according to Fed funds futures—but it was a strong acknowledgement that the market is largely correct on the direction of rates moving forward.

There were some shifts in the FOMC’s expectations for inflation and growth as well. While the Fed sees 2023 ending on a stronger note than previously anticipated (up 2.6% vs. 2.1% in the September projections), it did note the growth rate is likely to be slower in 2024 (up 1.4% vs. 1.5%). Similarly, the inflation rate was revised lower for 2023 (up 2.8% vs. 3.3%) and for 2024 (up 2.4% vs. +2.5%). The unemployment rate (U3) projections remained unchanged from September.

In totality, the projections and dot plot point to a dovish turn by the FOMC, which was welcomed as good news by market participants: The Fed is backing off of its rate hike cycle because victory over inflation is in sight, not because they are concerned about the economy careening into a recession.

Stocks and bonds surged on the initial announcement and during the ensuing press conference by Federal Reserve Chair Jerome Powell, with the S&P 500 (/ESH4) and Nasdaq 100 (/NQH4) moving up to fresh daily, weekly and monthly highs; the Nasdaq 100 itself is at fresh yearly highs as well. Bonds rallied across the curve, and the ensuing push lower in yields now sees the U.S. Treasury 10-year yield at 4.030%, its lowest level since Aug. 10.

/ZQ Fed Funds Futures Forward Curve (December 2023 to December 2025)

/ZQ Forward Curve

The /ZQ (Fed funds) term structure shows an expectation that the Fed will begin cutting rates soon: There is greater than a 67% chance that the first cut is delivered in March. Rate cut odds build steadily thereafter, with additional cuts anticipated in May, July, September and December 2024.

Christopher Vecchio, CFA, tastylive’s head of futures and forex, has been trading for nearly 20 years. He has consulted with multinational firms on FX hedging and lectured at Duke Law School on FX derivatives. Vecchio searches for high-convexity opportunities at the crossroads of macroeconomics and global politics. He hosts Futures Power Hour Monday-Friday and Let Me Explain on Tuesdays, and co-hosts Overtime, Monday-Thursday. @cvecchiofx  

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

Trade with a better broker, open a tastytrade account today. tastylive, Inc. and tastytrade, Inc. are separate but affiliated companies.


Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Related Posts

tastylive content is created, produced, and provided solely by tastylive, Inc. (“tastylive”) and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. tastylive is not in the business of transacting securities trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives. Supporting documentation for any claims (including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.  Options, futures, and futures options are not suitable for all investors.  Prior to trading securities, options, futures, or futures options, please read the applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange-Traded Options Risk Disclosure found on tastytrade.com/disclosures.

tastytrade, Inc. ("tastytrade”) is a registered broker-dealer and member of FINRA, NFA, and SIPC. tastytrade was previously known as tastyworks, Inc. (“tastyworks”). tastytrade offers self-directed brokerage accounts to its customers. tastytrade does not give financial or trading advice, nor does it make investment recommendations. You alone are responsible for making your investment and trading decisions and for evaluating the merits and risks associated with the use of tastytrade’s systems, services or products. tastytrade is a wholly-owned subsidiary of tastylive, Inc.

tastytrade has entered into a Marketing Agreement with tastylive (“Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’s brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade. tastytrade and Marketing Agent are separate entities with their own products and services. tastylive is the parent company of tastytrade.

tastycrypto is provided solely by tasty Software Solutions, LLC. tasty Software Solutions, LLC is a separate but affiliate company of tastylive, Inc. Neither tastylive nor any of its affiliates are responsible for the products or services provided by tasty Software Solutions, LLC. Cryptocurrency trading is not suitable for all investors due to the number of risks involved. The value of any cryptocurrency, including digital assets pegged to fiat currency, commodities, or any other asset, may go to zero.

© copyright 2013 - 2024 tastylive, Inc. All Rights Reserved.  Applicable portions of the Terms of Use on tastylive.com apply.  Reproduction, adaptation, distribution, public display, exhibition for profit, or storage in any electronic storage media in whole or in part is prohibited under penalty of law, provided that you may download tastylive’s podcasts as necessary to view for personal use. tastylive was previously known as tastytrade, Inc. tastylive is a trademark/servicemark owned by tastylive, Inc.