Week of 12/11-12/15 The FED Keeps Rates Steady, Fuels Market Rally

The Federal Reserve annouced to keep interest rates untouched during their FOMC meeting earlier this week, fueling the current stock market rally into new highs. All three indexes reacted positively, as we close in to all time highs lastly reached during the Covid market rally. The FED's optimism and economic reports seem to be putting an end to the interest rate tightening campaign and 2024 seems to include of series of rate cuts. Currently, the market does seem to be in track to give investors and traders their Santa Claus rally to close in the year on a positive note.

This week marks the 7th week of consecutive gains for stock market, easing the 10-year yield to 3.91%. The relationship between the 10-year Treasury yield and the stock market is an important dynamic that investors closely monitor. The 10-year Treasury yield serves as a benchmark for interest rates in the economy and is considered a key indicator of investor sentiment. When the yield on the 10-year Treasury rises, it signifies that investors are demanding higher returns on their investments, which can have implications for the stock market. Typically, as the 10-year Treasury yield increases, it can make stocks and other riskier assets less attractive compared to fixed-income investments. This is because higher Treasury yields mean higher borrowing costs for companies, which can potentially impact their profitability. As a result, investors may reallocate their investments away from stocks towards fixed-income assets, putting downward pressure on stock prices. Conversely, when the 10-year Treasury yield decreases, it can make stocks more appealing compared to fixed-income investments. Lower yields make borrowing costs for companies more affordable, potentially boosting their profitability and increasing investor confidence in the stock market. As a result, stock prices may rise as investors allocate more funds towards equities. However, it is important to note that the relationship between the 10-year Treasury yield and the stock market is not always straightforward. Other factors such as economic conditions, geopolitical events, and central bank policies can also influence stock market performance. Additionally, short-term fluctuations in the yield may not have a lasting impact on the stock market. Investors should consider the broader economic landscape and evaluate various indicators when making investment decisions, rather than solely relying on the 10-year Treasury yield.