Dec 28, 2023: In a surge of market optimism over the prospects of substantial rate cuts, Asian shares climbed to five-month peaks on Thursday, continuing a robust rally in U.S. stocks and bonds. Despite this surge, there remains room for potential disappointment as the new year approaches.
The S&P 500 index has soared by 14% in just two months, inching remarkably close to its all-time closing peak. Meanwhile, its price-to-earnings ratio has surged by a quarter over the year, standing at 24.0.
MSCI’s broadest index of Asia-Pacific shares, excluding Japan, gained another 1.4%, marking an 11% increase in the past two months and reaching its highest level since August.
Japan’s Nikkei, however, saw a 0.4% decrease due to a yen rebound, resulting in minimal gains for December.
Chinese blue chips registered a 2.3% increase, despite often missing out on the global market upswing due to concerns among foreign investors about the nation’s struggling economic recovery and ongoing tensions with the United States.
Looking toward European markets, EUROSTOXX 50 futures increased by 0.4%, while FTSE futures rose by 0.3%. S&P 500 futures slightly climbed by 0.1% to achieve yet another record high, and Nasdaq futures strengthened by 0.2%.
Despite the absence of major news, investors have substantially increased their expectations of rapid rate cuts from the Federal Reserve.
Current futures imply an 88% likelihood of a rate cut as early as March, a significant surge from a month ago when the probability stood at just 21%.
The market has now factored in approximately 157 basis points of easing for 2024 and anticipates rates reaching 3.00-3.25% by 2025.
