Dow Jones closes at record high after eclipsing 37,000 intraday for first time in history as Fed signals interest-rate cuts in 2024

By Joy Wiltermuth and Isabel Wang

Fed holds rates steady as expected while Chair Jerome Powell says policy rates likely at peak

U.S. stock stocks jumped Wednesday, with the Dow posting a record close for the first time in almost two years, after the Federal Reserve kept rates steady and mapped out a fresh path for rates in 2024.

Chairman Jerome Powell said rates likely have peaked in this cycle at a press conference.

How stock indexes did

The Dow Jones Industrial Average DJIA closed up 512.30 points, or 1.4%, at a record 37,090.24, its first record close since January 2022.The S&P 500 SPX ended 63.39 points higher, or 1.37%, at 4,707.09.The Nasdaq Composite COMP finished 200.57 points higher, or 1.38%, at 14,733.96, after earlier turning negative.

On Tuesday, the Dow Jones Industrial Average rose 0.5%, while the S&P 500 climbed 0.5% and the Nasdaq Composite gained 0.7%.

What drove markets

The Dow Jones Industrial Average eclipsed the 37,000 mark intraday for the first time on record on Wednesday, after the Fed held its short-term policy rate unchanged at a range of 5.25% to 5.50%, but signaled that a pivot to rate cuts could be in the cards for 2024.

It also marked the Dow's first record close in about two years, according to FactSet data. All three major indexes jumped more than 1.3%.

"It's a party," said Kathy Jones, chief fixed-income strategist at the Schwab Center for Financial Research, of the reaction in the markets. "We are pivoting."

While the Fed's range of expected rate cuts isn't set in stone, the new "dot plot" signals a greater consensus around the potential for three 25-basis-point rate cuts next year, Jones said.

Chairman Jerome Powell said at an afternoon press conference that he believes the central bank's policy rate is now at or near a peak. But he also said inflation data will be closely watched, and that the Fed is focused on not keeping rates too high for too long.

The Fed's policy rate is now expected to end 2024 at 4.6%, versus 5.1% from an earlier projection.

"If the concern was that the Fed would keep rates too tight in real terms for too long, and that would put the economy in recession, those concerns are lower now," said Erik Weisman, chief economist at MFS Investment Management.

But for anyone worried about the Fed loosening policy too soon and reigniting inflation like in the '60s and '70s, "the path for that scenario has also risen," Weisman said.

Traders on Wednesday were pricing in a nearly 57% probability that the Fed will deliver its first quarter-point rate cut in March, according to the CME FedWatch Tool. In recent weeks, expectations for the first cut had been largely pushed back to May.

The European Central Bank and the Bank of England also are due to give policy updates this week.

The 10-year Treasury yield BX:TMUBMUSD10Y fell 17.3 basis points to 4.032% on Wednesday, after hitting a 16-year peak of 5% in October.

See: Fed will try to 'Keep calm and carry on' amidst talk of steep rate cuts and recession

In economic data, U.S. wholesale prices were unchanged in November in another sign of gradually easing inflation, the Bureau of Labor Statistics said Wednesday. Economists polled by the Wall Street Journal had forecast a 0.1% increase in the producer-price index.

Demand for mortgages surged this week, fueled by a drop in the 30-year fixed mortgage rate, with some brokers quoting rates below 7%.

Companies in focus

LifeMD Inc.'s stock LFMD fell 5.8% Wednesday after the virtual primary-care provider said it's teaming up with Medifast Inc. MED to create a clinically supported weight-management program that will include the new class of weight-loss drugs called GLP-1 receptor agonists.Pfizer Inc.'s stock PFE shed 9.1% after the drug company set its 2024 revenue and profit forecast below Wall Street expectations. Tesla Inc.'s stock TSLA turned 0.4% higher Wednesday after news that the electric-vehicle company was recalling more than 2 million vehicles due to Autopilot control issues.

-Jamie Chisholm contributed

-Joy Wiltermuth -Isabel Wang

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12-13-23 1623ET

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