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Market Recap – December 18, 2023

Keel Point

December 18, 2023

As expected, the Fed left its interest rate unchanged last week and signaled rate cuts beginning in 2024.  Financial markets reacted positively: S&P 500 adding another 2.7% bringing its YTD gains to 23.4%; and 10-year Treasurys closing last week at 3.915% which is down from 4.996% just two months ago. 

  • The updated December 13 Summary of Economic Projections (“SEP”) shows Fed officials likely cutting rates three or more times in 2024. Futures traders are now pricing in a 59% likelihood that the Federal Reserve will deliver its first rate cut in March 2024.
  • Despite maintaining the Fed’s hawkish tone as recently as two weeks ago, Fed Chair Powell last Wednesday said there has been “real progress on inflation” while the labor market has come more into balance. He also indicated that the FOMC is focusing on not making the mistake of keeping rates high for too long.
  • Both the Fed and the non-partisan Congressional Budget Office last week signaled that the U.S. economy would achieve a soft landing – defeating inflation without an economic recession. Both project slower but positive economic growth in 2024.
  • The stock market reaction this past week reflects the importance of “why” vs “when” the Fed cuts interest rates. The Finom Group notes that rate cuts to lower real rates generate S&P 500 returns of roughly 10% per annum; while rate cuts to fend off imminent recession cause the S&P to fall 15% on average the following 12 months. (
  • Also reported last Tuesday, all items CPI inflation fell to 3.1% over the past 12 months because of falling gas prices, but November core CPI inflation over the past 12 months was unchanged at 4%. The Fed’s preferred PCE core inflation metric, however, has annualized three- and six-month core inflation at 2.4% and 2.5% respectively – close to their 2% target. 

China’s leadership held its annual economic policy meetings last week, concluding that China’s economy was still facing difficulties and pledging to “strengthen macro policies”.  

  • Fiscal and monetary policy stimulus will help, but there was no acknowledgment of the structural issues: lower incomes leading to lower consumer spending, weaker private investment from real estate problems and weakening foreign direct investment.
  • Slowing economic growth in China reduces its contribution to global economic growth through its investments in and imports from other developed and emerging markets.


Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SPIC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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