A Breakout Year for Global Stocks ahead of Fed’s Pivot in 2024

Global stock market to their highest level in years, noticeably in the fourth quarter when some markets made an all-time high in speculation of faster-than-expected rate cuts by the US Federal Reserve to be as early as March.

Stock markets had been moving in a limited range for the most part of 2022 and 2023 with the US Fed starting to raise interest rates aggressively to combat inflation at the level not seen in decades. Major central banks such as the European Central Bank and Bank of England follow suit, except the Bank of Japan that maintained its ultra-loose monetary policy in negative territory.

As rates spike, the U.S. treasury yields also accelerated as well. The 10-year bond yield topped 5% for the first time since 2007. Meanwhile, the Dollar Index rose to around 106.50 in October, the highest level in a year.

Investors were losing interest in risk assets amid uncertainties that affected the markets, starting with concerns over recession, the banking crisis, high inflation and interest rates, the war in Israel and the Red Sea disruption.

But as soon as the Fed paused rates in September, world stocks started to rally. As the year is coming to a close, the U.S. 10-year bond yield hit the lowest level in about six months, while the US dollar reached its five-month low.


S&P 500 notched 25% gain this year with 11.5% of gain in the fourth quarter. Meanwhile, the Dow Jones Industrial Average rose 13% and the Nasdaq Composite made a remarkable 45% jump this year.

Not just Wall Street that rallied after seeing concrete evidence that the Fed will cut rates in 2024. The German DAX rose 19%, India’s NIFTY 500 increased 25%, while Japan’s Nikkei 225 was up 30% this year.


The trend of global stocks is looking even better in the last few days of 2023 as the market is upgrading its forecast for rate cuts in 2024.

The market is now pricing in a base case of seven interest rate cuts in 2024 by the US Federal Reserve.

There is even a 10% chance of one more extra cut from the base case for a total of eight cuts in 2024 and a 1% chance for the nine cuts.

This implies that the market sees up to 3x as many rate cuts as the Fed is guiding with expectation for 175-225 basis points of rate cuts next year.

Meanwhile, Goldman Sachs expects the FOMC to deliver three consecutive cuts as soon as March, May and June. The fast pace of rate cuts by the US Fed will slow down after the third cut to a quarterly pace in 3Q and 4Q for a total of five cuts.