 "Markets soar on dovish US Federal Reserve, Sensex settles atop 70K")
Global markets are abuzz with activity, with their spirits buoyed by the US Federal Reserve’s dovish pivot. With stock prices soaring, the 10-year US Treasury yield — a gauge of risk appetite — has dipped below 4 per cent and investors are recalibrating their expectations, anticipating more aggressive rate cuts than previously forecasted.
The domestic markets, taking their cue from the sharp gains in the US markets overnight, opened strong on Thursday and managed to retain most of their gains; the benchmark indices closed at new highs and surpassed key milestones.
The Sensex closed at 70,514, up by 930 points or 1.34 per cent. The Nifty50 ended the session at 21,183 after a rise of 256 points or 1.23 per cent. Both indices have seen gains in all but two sessions over the past three weeks. The Sensex has already gained 5.3 per cent in December, marking the highest monthly gains since October of the previous year.
The market cap of all BSE-listed companies reached a new record of Rs 355 trillion ($4.26 trillion), following a surge of Rs 3.8 trillion on Thursday.
Maintaining rates at a 22-year high, Federal Reserve Chair Jerome Powell signalled a clear shift in the US central bank’s strategy: Rate cuts are on the horizon, slated to begin in 2024. Some central bank officials even hinted at a 75 basis point rate cut next year — more than the markets had priced in.
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Though the Federal Reserve chief said that rate hikes may be on the table if necessary, the focus of US monetary policymakers, he indicated, is shifting. They are now considering when to implement rate cuts, as inflation in the US is trending towards their 2 per cent target.
The Fed dot plot, a representation of the Fed policymakers' long-term interest rate estimates, reveals a divergence of opinion. Eight officials anticipate fewer than three quarter-point cuts next year, while five foresee more. The 10-year US bond yield reached its lowest point since July 26, 2023, and was trading at 3.9 per cent.
“It’s a full turnaround from higher-for-longer to let’s talk about rates coming down. The markets would now see how soon the rate cuts would come. Everyone was surprised by how dovish Powell was. Maybe the US economy is slowing a lot quicker than we see. They have been criticised for first being too slow to tackle inflation and then going too far with interest rate hikes. Maybe on the way down, they don't want to be told that they're too slow. This is enough to give markets a reason to rally -- it takes away the headwinds; it takes away unintended consequences,” said Andrew Holland, CEO of Avendus Capital Alternate Strategies.
After underperforming global equity markets in November, the domestic markets have been on an upward trajectory for the past three weeks. This rally is fuelled by hopes of rate cuts, policy continuity, and strong macroeconomic numbers.
“The status quo maintained by the Reserve Bank of India -- with a positive revision in FY24 GDP growth forecast, sequential improvement in the high-frequency indicators, and robust earnings growth expectations -- has contributed to this momentum. We can see the markets making new highs if bond yields and crude prices remain soft. Largecaps appear to be better placed at current levels in terms of overall valuation,” said Pranav Haridasan, MD and CEO at Axis Securities.
The upcoming macro data from the US and Euro Zone will be the key to determining the bond yield and market trajectories going ahead.
The domestic market breadth was strong, with 2,026 stocks advancing and 1,748 declining. More than two-thirds of Sensex stocks advanced. IT stocks gained the most, with the Nifty IT index rallying 3.5 per cent. Analysts said the improved outlook for the US economy bodes well for the prospects of IT companies as they derive most of their revenues from the world’s largest economy.