The Dow Jones Industrial Average (DJIA) reached both an intraday high and a record close on Wednesday following the Federal Reserve's indication of potential rate cuts in 2024.

Dow Jones Soars Above 37,000 Points

According to Dow Jones Market Data, the Dow climbed 512.30 points, or 1.4%, settling at 37,090.24. This marks the first time the index has surpassed the 37,000 mark intraday, reaching as high as 37,094.85 on Wednesday.

A Significant Milestone: Longest Time between 1,000-Point Increases

With this new record close, it has been 531 trading days since the Dow achieved its last 1,000-point milestone. This is the longest duration between milestones since the index rose from 14,000 to 15,000.

Federal Reserve Signal and Market Response

The U.S. central bank chose to maintain its key policy rate within the range of 5.25% to 5.5%, a level not seen in 22 years. However, officials adjusted their dot-plot forecast to include three rate cuts in 2024.

During an afternoon press conference, Fed Chair Jerome Powell stressed the importance of avoiding prolonged restriction on rates. Powell's remarks prompted all three major equity benchmarks to surge by at least 1.3% on Wednesday.

Stock Market Resurgence

The S&P 500 index (SPX) concluded the day with a 1.4% increase, while the Nasdaq Composite Index (COMP) also rose by 1.4%. This represents their most substantial daily gains in approximately a month, according to Dow Jones Market Data.

Additionally, small-cap stocks showcased impressive strength, with the Russell 2000 index (RUT) experiencing a 3.5% surge, as reported by FactSet data.

Investors Embrace Fed's Success in Tackling Inflation

Investors are now confident that the Federal Reserve has successfully managed to control inflation without triggering a recession. This achievement, known as a "soft-landing," is perceived as positive by market strategist Kathryn Rooney Vera, the chief market strategist at StoneX Group.

Rooney Vera highlighted Powell's "remarkably dovish" tone during the press conference, further boosting investor sentiment.

Santa Claus Rally and Concerns About Sustainability

According to experts, the positive momentum in the stock market may result in a "Santa Claus rally" during the last five trading sessions of this year and the first two sessions of the next year. This phenomenon refers to the stock market's tendency to push higher during this period. However, concerns remain about the sustainability of this rally in the coming 12 to 18 months, as there are still risks of a recession that have not been eliminated.

The recent rally on Wednesday was heavily influenced by the Federal Reserve's actions. Peter Cardillo, chief market economist at Spartan Capital Securities, emphasized the significance of rate cuts, which are now anticipated for 2024. The question that remains unanswered is when these rate cuts will begin.

Despite the uncertain future, Cardillo believes that the year-end rally in stocks will continue into 2024. However, he also suggests that it may not be as vibrant as what was seen on Wednesday.

Federal Reserve Chair Jerome Powell's comments regarding the economy have been well received by the markets. Although Powell expressed a cautious approach and refrained from declaring victory in avoiding a recession, his lack of pushback on easing financial conditions, coupled with decreasing inflation, is expected to support the Santa Claus rally for now.

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