As the Fed's attitude softened beyond expectations after this week's FOMC meeting and the official announcement that “discussions on interest rate cuts have begun,” all asset classes began a carnival upward pattern.

Overnight, stocks, bonds, oil, and gold rose in unison. WTI crude oil futures rose 3.14% to 71.65 US dollars/barrel; COMEX gold futures rose 2.70% to 2051.20 US dollars/ounce; and the Dow rose 0.4% to a record high of 37248.35 points. The S&P 500 Index closed at its highest level since January 2022. The price of US bonds rose collaboratively. The benchmark 10-year US Treasury yield continued to decline, falling below 4% to close at 3.929%, the lowest closing price since late July.

The Fed's decision sparks the strongest bullish sentiment in 15 years

The lowest returns of ETFs that track different assets show that all types of assets have increased by at least 1%, surpassing the gains of all other Fed decisions since March 2009.

The sharp rise after the current monetary policy path was confirmed is also a continuation of November's gains.

Data released last month showed that with the US labor market and consumer spending maintaining a positive trend, inflation has declined significantly, and analysts' expectations of a soft landing are in sight.

Judging from the recent trend in trading Japanese and US stocks, many investors betting on large technology stocks, encouraged by economic data and confirmation of monetary policy paths, have begun to set their sights on a wider range of other assets. On Wednesday, the Russell 2000 small-cap index surged 3.5%, more than double the increase of the Nasdaq 100 index.

The yield on 2-year US Treasury bonds has declined by 34 bps this week, and the yield on 30-year US Treasury bonds has also fallen by 27 bps. At the same time, the yield on 10-year US Treasury bonds has fallen below 4%.

Gene Tannuzzo, global head of fixed income at Threadneedle Investments, said:

“All the pain and PTSD that the sharp interest rate hikes in 2022 and 2023 have brought to the bond market is finally over.”

Can the increase continue? The agency reminds that the road ahead is still dangerous

Analysts believe that unless the US shows another round of economic data that unexpectedly exceeds expectations, or the federal government has another fiscal problem, this round of growth is likely to continue.

According to FactSet data, traders are already betting that the Federal Reserve will lower the benchmark interest rate to close to 3.9% next year and begin cutting interest rates in March. This is far below the 4.6% interest rate level shown by the Fed's bitmap.

Interest rate cuts mean lower financing costs for companies, investors, and households, while a relaxed financial environment boosts the economy, and falling treasury yields lower mortgage interest rates. Mortgage interest rates fell below 7% for the first time since August on Thursday. This could help revive the US real estate market.

However, many investors have doubts about the sustainability of this rally. Some agencies warned that the US economic growth momentum is still too strong, so it is impossible to anticipate the number of interest rate cuts. Since the outbreak of the COVID-19 pandemic, Wall Street's optimism about interest rates has triggered several rounds of market rebound, but in the end, it has not been possible to predict the determination of the Federal Reserve.

BlackRock Global Fixed Income Chief Investment Officer Rick Rieder told the media:

“The market's performance is so good partly because people originally thought Powell would strongly oppose market easing expectations (but I didn't expect the Fed's dovish attitude to exceed expectations).”

However, some investors believe that the financial environment is gradually being relaxed. The Federal Reserve may think that even if it does not cut interest rates, it will not have much impact on the market. There are still concerns about continued high interest rates, or they may cause resistance to rising risk assets.

Editor/Somer