Traders Pile Into Stocks And Treasury ETFs Post-Fed Meeting, Anticipate First Rate Cut In June 2024

Stocks and bonds experienced hours of intense rally in New York following the Federal Open Market Committee (FOMC) meeting, during which policymakers opted to keep interest rates steady at 5.25%-5.5%.

Remarks from Fed chair Jerome Powell, who emphasized caution and the consideration of financial conditions, had a reassuring effect on investors.

The SPDR S&P 500 ETF Trust SPY, the largest exchange-traded fund tracking the S&P 500 index, surged by 1.5% at 11:30 a.m. ET, is on course for its fourth consecutive session of gains.

The tech-skewed Invesco QQQ Trust QQQ also witnessed a significant gain of 1.5% and was headed for its fifth consecutive day of gains, marking its strongest winning streak since mid-August.

The popular iShares 20+ Year Treasury Bond ETF TLT rallied even further, posting a 2.2% gain as Treasury yields dropped across all maturities.

MEETING DATE	350-375	375-400	400-425	425-450	450-475	475-500	500-525	525-550	550-575	575-600
12/13/2023	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	80.2%	19.8%	0.0%
01/31/2024	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	71.9%	26.0%	2.0%
03/20/2024	0.0%	0.0%	0.0%	0.0%	0.0%	0.0%	12.9%	63.7%	21.7%	1.7%
05/01/2024	0.0%	0.0%	0.0%	0.0%	0.0%	5.4%	34.0%	46.2%	13.4%	1.0%
06/12/2024	0.0%	0.0%	0.0%	0.0%	2.9%	21.0%	40.7%	28.4%	6.6%	0.4%
07/31/2024	0.0%	0.0%	0.0%	1.8%	14.3%	33.4%	32.9%	14.7%	2.7%	0.2%
09/18/2024	0.0%	0.0%	1.1%	9.4%	25.9%	33.1%	21.8%	7.4%	1.2%	0.1%
11/07/2024	0.0%	0.6%	5.4%	17.9%	29.6%	27.3%	14.4%	4.2%	0.6%	0.0%
12/18/2024	0.4%	3.7%	13.6%	25.6%	28.1%	18.8%	7.7%	1.8%	0.2%	0.0%

The futures market for the Fed funds rate now implies a high probability of steady interest rates also in December, with an 80% likelihood.

The first rate cut is expected to occur in June 2024. Beyond that date, the market expects the Fed to cut rates again in July, maintain rates in September, and then cut rates once more in November, according to CME Group Inc.

The two-year Treasury yield, known for its sensitivity to policy changes, fell below the 5% threshold after the FOMC meeting, while long-term yields, which had been a source of concern due to their recent increase, experienced even a more substantial decline. The 30-year yield, for instance, dropped by nearly 30 basis points over the past two sessions.

Uncertainty Persists: A growing number of investors are cautioning against prematurely declaring an end to the brutal selloff in the U.S. bond market, Bloomberg reports.

Hedge fund K2 Asset Management predicts that benchmark 10-year Treasury yields will rise back to 5%.

Franklin Templeton suggests they could peak at 5.25%, a level last observed in 2007.

The Fed’s bias toward hiking rates was present during Powell’s press conference as noted by Joost van Leenders, a senior investment strategist at Van Lanschot Kempen.

Bank of America continues to anticipate another Fed rate hike in December, in contrast to market expectations. Rate strategist Mark Cabana advises investors to exercise caution when considering duration-sensitive bonds.

Cabana suggests, “We continue to believe investors should be cautious with longer-term bonds as long as 10-year rates are near 5%, but we should refrain from taking a more optimistic stance on duration until economic data moderates or risk assets demonstrate a clearer negative response to higher rates,” as stated in a note to clients.

Investors are now eagerly awaiting the forthcoming jobs report due on Friday, with expectations for non-farm payrolls to decrease from 330,000 in September to 180,000.

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