US stock were near flat on Wednesday after a top Federal Reserve official hinted the central bank is done with interest rate hikes, opening the door to a possible rate cut.
The Dow Jones Industrial Average (^DJI) and the benchmark S&P 500 (^GSPC) hovered near the flat line while the the tech-heavy Nasdaq Composite (^IXIC) fell about 0.1%.
Hopes for a policy pivot grew after Fed governor Christopher Waller said there was “no reason” to insist rates stay “really high” if inflation continues to cool consistently.
While Fed governor Michelle Bowman differed, other officials echoed Waller’s dovish comments, with Chicago Fed president Austan Goolsbee voicing concerns about keeping rates “too high for too long.”
Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards
Influential investor Bill Ackman is among those now betting the Fed will start cutting rates earlier than expected, saying the move could come as soon as the first quarter.
Bonds extended gains fueled by dovish comments, with the 10-year Treasury yield (^TNX) — which moves inversely to prices — dropping about 6 basis points to around 4.28%, its lowest since September.
A fresh reading on US third quarter GDP showed the US economy grew at a 5.2% annualized rate last quarter, revised up from the previous reading of a 4.9% pace.
In individual stocks, General Motors (GM) shares jumped about 10% at the open after the auto giant said it would buy back $10 billion in shares and raise its dividend by one-third.
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JGeneral Motors stock soars on boosted divided
General Motors (GM) stock popped about 10% on Monday after launching its largest ever share buyback program.
The automotive company will boost its dividend by 33% and repurchase $10 billion of shares.
“It’s about us not only being profitable, but generating strong cash flow from a combustible and EV business, and growing software business,” GM CEO Mary Barra told Yahoo Finance Live. “It’s demonstrating our confidence in our strategy and ability to grow, generate free cash flow, as well as strong margins.”
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Third quarter GDP revisions further “Goldilocks” narrative for US economy
Growth in the US economy continues to surprise to the upside while inflation declines.
New data from the Bureau of Economic Analysis revealed the US economy grew at a 5.2% annualized pace in the third quarter, revised up from the 4.9% reported in the advance estimate a month ago.
The quarterly reading for Personal Consumption Expenditures (PCE) showed core prices, which exclude volatile categories like food and energy, grew at a 2.3% pace during the third quarter, down from an initial reading of 2.4%. The release showed inflation continues to cool toward the Federal Reserve’s long-run goal of 2% inflation.
Raymond James’ chief economist Eugenio Aleman described the print as a “Goldilocks scenario,” meaning the economy is growing at a solid pace but not so fast that the Fed needs to worry that it will be an upside risk to inflation.
That reading comes as recent commentary from Fed governor Christopher Waller has investors believing interest rate cuts could come sooner than initially expected. Waller said there was “no reason” that rates must stay “really high” if inflation keeps declining consistently.
“Perhaps [Wednesday’s revision] was the reason why several Fed speakers have been relatively dovish lately and will probably cement the market’s conviction that the Fed is done increasing interest rates this cycle,” Aleman wrote in a research note Wednesday. “This is good news for the economy and for the markets.”
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Stocks open higher as yields fall
Stocks opened higher on Wednesday, as a fresh reading of Gross Domestic Product showed the US economy grew at a faster than previously reported pace in the third quarter and commentary from Fed officials hinted that rate cuts may be coming sooner than markets initially thought.
The Dow Jones Industrial Average (^DJI) rose nearly 0.2%, while the benchmark S&P 500 (^GSPC) popped about 0.5%. The tech-heavy Nasdaq Composite (^IXIC) was up about 0.7% after the three stock gauges closed higher Tuesday to resume their November rally.
Bonds extended gains fueled by dovish comments, with the 10-year Treasury yield (^TNX) — which moves inversely to prices — dropping about 6 basis points to around 4.28%, its lowest since September.
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