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US stocks (^DJI, ^IXIC, ^GSPC) capped off Wednesday's trading day in positive territory after the Federal Reserve opted to hold interest rates while still forecasting two rate cuts to come in 2025.
Yahoo Finance senior reporter Alexandra Canal breaks down the session's top market themes, including breaking down the Fed's economic forecasts, the return of risk-on sectors, and pervasive uncertainty in the US market and economy.
To watch more expert insights and analysis on the latest market action, check out more Asking for a Trend here.
US stocks closing higher, as the Fed still sees two rate cuts for 2025. At least that's what the dot plot pointed to. Yahoo finances Alexandra Canal joins us now with the trading day takeaways. Hey, Ali.
Hey, Julie. Yeah, that's right. Markets closing off of the highs that we saw earlier in the session, but still firmly in the green after this pretty active Fed day. And I think a big part of that has to do that the Fed forecast that came in mostly steady. So you mentioned the dot plot, let's zone in there for 2025. Pretty much the same as December there. Most FOMC officials see two interest rates cuts to come this year. We are leaning a little bit hawkish. There are more that potentially see no rate cuts, more potentially just one rate cut, but still, the fact that we were pretty consistent from March to December in the midst of all these other fears and uncertainties going on, that was an encouraging sign. To that point, you know, stagflation, that was a big concern. And we did see core PCE inflation be revised to the upside there, 2.8% versus the prior 2.5%, but then you get to 2027, we're hitting that 2% inflation target, same as where we started in December.
I mean, how seriously do we take that? If it's so uncertain that we don't even know what's going to happen later this year, I don't think they know what's going to happen in 2027. I'm just saying.
Right, and you know, and to that point, you know, Powell did say that he thinks tariffs, the base case at least, is transitory. Whether or not that comes to fruition, that is a big unknown. And then, you know, GDP as well, big revision to the downside, 1.7% versus the prior 2.1%. And then over the long run, baby, we're back at 1.8%. So you know, it's it's all of this that the market is really digesting, and I think it was there was a lot of fear heading in. Yeah. We could potentially maybe just see one interest rate cut priced in by the Fed. Markets wouldn't have liked that. Maybe, you know, over the long run, we see GDP deteriorate more quickly to the downside or inflation rise more quickly than expected. So I think the fact that we saw these projections come in relatively the same over the long run that we did in December, that was encouraging for markets.
Yeah, encouraging for markets. And we we saw stocks kind of take off here.
Exactly, which leads me to my second point, is the risk on trade back on? And I want to take a quick look at some of the sector action that we saw, because some of the best-performing sectors here today were those that really have underperformed during the selloff. So you think about tech, consumer discretionary, and then you had those more defensive names like staples, materials, utilities, still closing in the green, but not nearly as much as some of their sector counterparts. Now, I do want to say, ex K-tech, you take a look at year-to-date right here, I got you know, we're still down about 8%, so still a lot of work to do. And then if you take a look under the hood of the Nasdaq, you have a pretty, you know, pretty picture right here, but then year-to-date, where is this quick flip? A lot of red. So still a lot more work that's needed there.
Yeah. And let's come back to that word I mentioned, uncertainty.
Yes, uncertainty. And to me, that is the word of the day, Julie. We heard Powell mention it quite frequently. There's a lot of uncertainty when we think about policy, tariffs, what could happen with Deutsche, is there a ripple effect that could go filter into the unemployment rate. You know, we haven't even talked about immigration that intensely, and that's something that could also affect things. And I was curious to see if the VIX would do anything with uncertainty sort of in in the pipeline there. And the VIX actually fell to the downside. Let me see if I can just find that here. And we have seen this sort of upward volatility over the past month. We're up about 30%. We're down about 8% today. We're hovering at just around that 20 level, so something to keep an eye on as we continue to get these headlines. And I think we also have to remember, this is one day, one snapshot in time. We know how quickly things could change within this market, especially with the back and forth headlines that we get from this administration. But overall though, positive day on the market. You see the Nasdaq closing up 1.4%. This is a stark contrast to what we've been used to over the past few days.
Yes. Although, as Matt Miskin from John Hancock told us earlier, you could get a hangover tomorrow from this.
That's true. That's true. And those are never fun.
No, they're not in the markets or in life. Thank you, Ali. Appreciate it.
Of course.
