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US stocks rebounded on Thursday, shaking off the gloom from a hawkish Federal Reserve meeting the previous day that had sent equities reeling around the world.
The S&P 500 rose 0.7 per cent in morning trading, suggesting investors were viewing the previous day’s nearly 3 per cent fall — its worst day since the market rout of early August — as a healthy pullback that presented new buying opportunities. The tech-heavy Nasdaq Composite gained 0.9 per cent after dropping 3.6 per cent.
Thursday’s rally in US equities stood in contrast to markets in Europe and Asia, which sank following Wednesday’s US sell-off.
Europe’s benchmark Stoxx 600 was down 1.2 per cent and the UK FTSE 100 off 1 per cent on Thursday after markets in India, Japan, South Korea and Hong Kong earlier closed in the red.
On Wednesday the Fed, as expected, reduced interest rates by a quarter-point but unsettled investors after raising its 2025 inflation forecasts and cutting back on its projections for further rate cuts. It was the central bank’s final meeting before president-elect Donald Trump takes office next month.
The dollar meanwhile held steady after soaring to its highest level since November 2022, as measured against a basket of its trading peers, following the Fed’s policy meeting.
Dollar strength hurt emerging market currencies in particular, with the Indian rupee hitting a record low of Rs85.1 against the dollar. The Chinese renminbi slid, while South Korea’s won sank to a 15-year low.
“The rates backdrop from the US Fed is going to put even more pressure on emerging markets”, said Robin Gilhooly, senior emerging markets economist at Abrdn. “It will be a tough start to next year for emerging markets . . . but the contours of US policy won’t become clear for a while.”
Concerns about inflation stalling above 2 per cent contributed to Fed officials forecasting just half a percentage point worth of cuts in 2025, down from a full percentage point in their last projections in September.
In bond markets, the yield on the benchmark 10-year Treasury rose another 0.04 percentage points to 4.54 per cent, its highest in more than six months, after climbing markedly on Wednesday.
“The narrative has shifted from inflation in abeyance and downside growth risks, to the Fed acknowledging the economy is in a ‘really good place’ and seriously questioning how much further rates need to be cut after all,” said Chris Turner, global head of markets at ING.