US equity markets soar in Q4 as investors embrace Fed’s expected rate cuts

Much like the mountaineer crushing a steady climb, major developed equity markets, led by the US, continued their ascent during the 4th quarter, recording strong gains. Embracing FOMO (fear-of-missing-out) and celebrating an early Christmas present from the Federal Reserve (‘Fed’) in the form of expected interest rate cuts early next year, investors purchased $263 billion of US equity ETFs in the fourth quarter1, propelling the S&P index to its highest closing level since March 2022, and the Dow Industrials index to a new all-time high in nominal price terms.

In recent months, coincident readings pointing to a weakening inflation backdrop and a softening in the American jobs market, whilst not alarming on the surface, appear to have given the Federal Reserve adequate ‘cover’ for a path towards rate cuts next year. The collective evidence was enough to prompt Powell into stating during the 13 December Fed meeting that a rate cut ‘is clearly a topic of discussion out in the world and also a discussion for us at our meeting today’.

Financial markets had already begun pricing in a significant increase in monetary easing expectations heading into the December meeting, but Powell’s actions were a triumph for the optimists. Cue a rocket-fuelled Santa Claus ‘almost everything’ rally, led by technology and consumer discretionary in the equity space, with bonds and property also well- bid as investors have become increasingly confident that interest rates will need to be cut at an even faster pace than the Fed, Bank of England, and the European Central Bank are indicating.

TEAM plc (LON:TEAM) is building a new wealth, asset management and complementary financial services group. With a focus on the UK, Crown Dependencies and International Finance Centres, the strategy is to build local businesses of scale around TEAM’s core skill of providing investment management services.

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