The stock market started the week on a cautious note as major U.S. indexes drifted, reflecting anticipation of the Federal Reserve’s final interest rate decision for the year. By early trading Monday, the S&P 500 rose 0.2%, following its first losing week in the last month. Meanwhile, the Dow Jones Industrial Average edged up by 17 points, or less than 0.1%, and the Nasdaq composite climbed 0.4%.
Bitcoin Breaks Records, Boosts MicroStrategy
Amid subdued stock market trends, Bitcoin stole the spotlight by topping $106,000 before pulling back to around $104,500, according to CoinDesk. This surge has further benefited companies tied to cryptocurrency, such as MicroStrategy (NASDAQ:MSTR). The software company, which has aggressively accumulated Bitcoin, saw its stock price rise 2% after being added to the Nasdaq 100 index.
MicroStrategy’s valuation has skyrocketed more than sixfold this year, demonstrating the strong correlation between its fortunes and Bitcoin’s meteoric rise. Bitcoin has climbed from approximately $44,000 at the start of the year, driven by optimism about a more crypto-friendly regulatory environment under President-elect Donald Trump.
Fed’s Rate Decision Takes Center Stage
The Federal Reserve is set to announce its final interest rate decision of 2024 this Wednesday, a move that could shape stock market trends for 2025 and beyond. Economists widely expect the Fed to lower its main interest rate for the third time this year, aiming to bolster the labor market and hit its inflation target of 2%.
A key question for traders and economists is how much further the Fed will adjust rates in 2025. Current projections indicate two more rate cuts next year, though expectations are beginning to waver due to recent signs that inflation might be harder to contain. Fed Chair Jerome Powell will provide clarity during a press conference following the meeting, where he will also discuss updated projections for economic growth and the federal funds rate through 2025.
The central bank’s aggressive rate hikes over the last two years brought inflation down from a peak of over 9% to near-target levels. However, concerns linger about inflationary pressures potentially arising from policies such as tariffs or unexpected economic disruptions.
Treasury Yields Reflect Anticipation
In the bond market, Treasury yields saw slight declines on Monday as investors adjusted to the likelihood of further Fed rate cuts. The yield on the 10-year Treasury fell to 4.37% from 4.40% late Friday, while the two-year yield, more closely tied to Fed expectations, slipped to 4.22% from 4.25%.
Global Markets Respond to Economic Data
Outside the U.S., stock markets showed mixed performance. European indexes posted modest declines, while Asian markets reacted to regional economic and political developments.
In China, November economic data fell short of expectations, despite government efforts to stimulate growth in the world’s second-largest economy. This dragged Hong Kong’s Hang Seng index down 0.9% and Shanghai’s Composite index by 0.2%.
South Korea’s Kospi dropped 0.2% amid political turmoil surrounding impeached President Yoon Suk Yeol. As the country’s Constitutional Court deliberates his fate, uncertainty has weighed on investor sentiment.
The Broader Picture
Stock market trends continue to reflect a complex mix of optimism about falling inflation and caution about global uncertainties. The Fed’s upcoming decision will likely serve as a bellwether for investor confidence heading into the new year, while Bitcoin’s record-breaking performance underscores the growing importance of cryptocurrencies in shaping financial markets.
Investors should remain watchful as key developments in monetary policy, cryptocurrency, and global markets unfold, influencing opportunities and risks in the months ahead.
Featured Image: Megapixl @ Walstraasworld
