In the December 13th 2023 2pm EST press release, the Federal Reserve announced it will hold the Federal Fund interest rate between 5.25 to 5.50% unchanged. The Federal Reserve members on average anticipate a few rates cuts in 2024 according to their projections published at: https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf
Rate cut benefits stocks as it become more favorable compared to bonds, money market funds and savings. Stocks that had been penalized during interest rate hikes will reverse and begin to recoup some of those declines. The housing and autos industry will benefit from a lowering of interest rate.
Economic activity is correlated with availability of money. As interest rates fall, it becomes easier to obtain business and personal loans. More consumers can qualify for car and home loans easier because the monthly payments drop when interest rate is reduced. Consumers and businesses that already have loans can refinance at a lower rate to lower their payment. The money saved can go towards new purchases or business expansions.
Market reaction was up across the board for major indices.
| Company | 12/12/2023 | 12/13/2023 | 12/14/2023 |
| Nasdaq Composite Index / COMP | 14,533.40 | 14,733.96 | 14,761.56 |
| S&P 500 / SPX | 4,643.70 | 4,707.09 | 4,719.55 |
| DOW Industrials / INDU | 36,577.94 | 37,090.24 | 37,248.35 |
| General Motors / GM (auto) | $33.42 | $33.99 | $36.25 |
| Tesla / TSLA (auto/tech) | $237.01 | $239.29 | $251.05 |
| Enphase / ENPH (solar) | $99.82 | $107.61 | $120.22 |
| Zillow / Z (housing) | $47.26 | $52.00 | $55.57 |
| Taylor Morrison / TMHC (housing) | $47.37 | $49.08 | $52.42 |
| Shopify / SHOP (e-commerce) | $72.50 | $73.86 | $77.54 |
| Microsoft / MSFT (it/tech) | $374.38 | $374.37 | $365.93 |
| Charles Schwab / SCHW (finance) | $64.57 | $66.30 | $70.94 |
| Alphabet, Google / GOOG (it/tech) | $133.64 | $133.97 | $133.20 |
Microsoft and Google went down after the Federal Reserve announcement. One reason may be both companies have plenty of cash and their businesses did well during the interest rate tightening period and did not suffer stock price decline. Both companies have announced major AI ambitions. Google announced Gemini on Dec 06, 2023. Its stock rose from $131.43 to $138.45 on Dec 07 2023. Other businesses had suffered huge business impact and stock declines as a result of high interest rate during that period and are recovering some of those losses.