A look at the day ahead in U.S. and global markets from Mike Dolan
Wall Street’s S&P500 looks poised to test 6,000 for the first time as the Federal Reserve underscored a post-election stock surge with its second interest rate cut of the year on Thursday and a nod to more.
Overseas, Friday’s focus was on China’s widely expected debt-raising stimulus plans – although the readout was these were in line with prior indications and China’s yuan, bond yields and stocks all edged lower.
Already lifted to record highs by this week’s quick and decisive election results and the prospect of President-elect Donald Trump’s promised tax cuts, the S&P500’s 25% year-to-date gains are the biggest by this stage of the year in almost 30 years.
December S&P stock futures crossed the 6,000 mark for the first time on Thursday and tried to retain a foothold there overnight. The VIX “fear index” of implied equity volatility probed below 15 for the first time in over a month.
“Although final results are still pending, it appears increasingly likely that Trump’s Republican party will secure full control of Congress, adding momentum to tax-cutting expectations along with his proposed tariff hikes.
Meanwhile, the Fed’s anticipated quarter-point rate cut on Thursday helped steady the Treasury markets. Chair Jerome Powell signaled the possibility of further easing despite a robust economy and persistent core inflation.
Fed futures now show a 90% probability of another quarter-point cut next month, with nearly 100 basis points of cuts expected through the end of next year. On Friday, 10-year U.S. Treasury yields dipped below 4.3%, and Treasury volatility indicators fell to their lowest level in a month.”
“Powell signaled that as long as disinflationary trends remained strong, the Fed would continue gradually lowering rates toward a neutral level, significantly below current rates, and emphasized that the Fed would wait for concrete government policy proposals before making any reactions.
In a notable exchange during the press conference, Powell firmly stated he would not leave his position as Fed Chair a year early, even if requested by President Trump. ‘Not permitted under the law,’ he asserted.
Earlier on Thursday, CNN cited a Trump advisor saying that Powell would serve out his term through May 2026, though Trump was reportedly considering former Fed Governor Kevin Warsh, a frequent Fed critic, or former White House economist Kevin Hassett as potential successors.
There is some concern that designating a likely successor now could weaken Powell’s influence on policy in the final months of his term.”
“As Trump begins selecting his cabinet, markets are now focused on his choice for Treasury Secretary.
With the Fed taking a relatively dovish stance—less aggressive than some post-election expectations—and Treasury yields softening, the dollar remained slightly subdued on Friday, though it retained about half of its initial post-election rally.
Meanwhile, the British pound held strong, and gilt yields declined following Thursday’s rate cut by the Bank of England. The Bank raised its inflation forecast for next year, citing recent government stimulus, but expressed confidence in its ability to continue gradually reducing rates.”
“However, markets do not expect the next rate cut in the UK until at least February.
The euro weakened again as investors focused on the escalating political crisis in Germany. Friedrich Merz, the leader of Germany’s conservative opposition, criticized Chancellor Olaf Scholz’s decision to delay a parliamentary confidence vote until 2025, calling it ‘irresponsible,’ as the likelihood of an early election grows.
After a whirlwind of critical events in recent weeks, Friday’s agenda is relatively light.
Stocks in Asia and Europe were generally down, with many investors now assessing the risks of an expanding global trade war as Trump prepares to take office and details of his tough tariff plans are awaited.
Key developments to watch for U.S. markets later on Friday include:
* Awaiting the final election results for the House of Representatives.”
“* University of Michigan’s November sentiment survey; Canada’s October employment report
* Federal Reserve Board Governor Michelle Bowman speaks
* U.S. corporate earnings: Paramount Global, Baxter (NYSE:BAX), NRG
