Wall Street went all in on stocks and bonds this week after Jerome Powell signaled the Federal Reserve’s aggressive hiking campaign is nearing its end.

The U.S. central bank left its benchmark rate unchanged as policymakers pivoted away from further rate hikes, instead penciling in three rate cuts for next year. The Nasdaq 100 closed at an all-time high for the first time in two years. The S&P 500 and the tech-heavy gauge both notched seven-week winning streaks on the back of the Fed’s about-face.

Even pushback from New York Fed President John Williams, who told CNBC on Friday it was “premature” to be thinking about a March rate cut, failed to squelch the risk-on rally.

The S&P 500 ended the day unchanged while the Dow Jones Industrial Average benchmarks advanced 0.2 per cent. U.S. Treasuries were mixed. 

“We view his comments as an effort to guide to a slower slope of normalization over several years as well as a challenge to the strong market bets on March for the first cut,” Krishna Guha, vice chairman at Evercore ISI, said. Guha views the first rate cut as more likely to come in May or June. 

Williams’ Atlanta counterpart, Raphael Bostic told Reuters he was only penciling in two quarter-percentage-point rate cuts in the latter half of 2024. Swaps traders were eying as many as six rates cuts for next year.

“The S&P 500 has rallied more than 10 per cent in less than two months so some digestion of the rally is needed,” Tom Essaye, the founder of The Sevens Report newsletter, wrote. That “likely will come in the near term, especially if Fed officials rhetorically push back on the market’s enthusiasm in the next week or two.”

The dollar advanced snapping a three-day slide. The yield on the 10-year bond — the benchmark for everything from mortgages to corporate debt — broke below 4 per cent for the first time since August. The rate on the two-year hit 4.45 per cent.

“Bond yields have been markedly volatile this year as market participants try to determine what the new normal for interest rates will be,” Carol Schleif, chief investment officer of BMO Family Office wrote. “We suspect the longer term new normal for the 10-year Treasury yield to range between 4 per cent and 4.5 per cent.”

As the week draws to a close, traders also have to contend with the year’s largest quarterly options and futures expiry and its potential to spark volatility. A staggering US$5.4 trillion of contracts tied to stocks and indexes go off the board today, according to an estimate from Rocky Fishman, founder of derivatives analytical firm Asym 500. 

Even with Williams tamping down some of the market’s ebullience, the Fed’s tone this week was more dovish than that from European peers. European Central Bank Governing Council member Madis Muller said Friday that markets are getting ahead of themselves in betting that the ECB will start cutting interest rates in the first half of next year. On Thursday, ECB President Christine Lagarde said the bank had not discussed rate cuts at all.

“The contrast between the resilient U.S. economy adopting a dovish stance and faltering European economies holding on to a hawkish position gives the impression that something is amiss,” Ipek Ozkardeskaya, a senior analyst at Swissquote, wrote in a note to clients.

Some of the main moves in markets:

Stocks

• The S&P 500 was little changed as of 4 p.m. New York time
• The Nasdaq 100 rose 0.5 per cent
• The Dow Jones Industrial Average rose 0.2 per cent
• The MSCI World index was little changed

Currencies

• The Bloomberg Dollar Spot Index rose 0.4 per cent
• The euro fell 0.9 per cent to $1.0893
• The British pound fell 0.7 per cent to $1.2674
• The Japanese yen fell 0.2 per cent to 142.24 per dollar

Cryptocurrencies

• Bitcoin fell 1.7 per cent to $42,242.83
• Ether fell 2.1 per cent to $2,251.65

Bonds

• The yield on 10-year Treasuries was little changed at 3.91 per cent
• Germany’s 10-year yield declined 10 basis points to 2.02 per cent
• Britain’s 10-year yield declined 10 basis points to 3.69 per cent

Commodities

• West Texas Intermediate crude rose 0.2 per cent to $71.69 a barrel
• Spot gold fell 0.9 per cent to $2,018.37 an ounce