Wall St near record highs as central banks end 2024 with rate cuts

A look at the day ahead in U.S. and global markets

By Samuel Indyk, Equities Reporter, Finance and Markets Breaking News

Data refreshes every time you open this email. For more U.S. market news, click here. Please send any feedback to morningbid@thomsonreuters.com.

The stellar year for U.S. stock markets took a bit of a breather on Thursday, perhaps expected after a rally that has led the Nasdaq to 20,000 for the first time this week and the S&P 500 to another record high.

Gains have been driven by optimism over artificial intelligence and rate-cut expectations, with attention now turning to the Federal Reserve's last policy meeting of the year, beginning next Tuesday.

The central bank is likely to follow up November's 25 basis point rate cut with another of the same magnitude, taking the fed funds rate to 4.25%-4.5%.

But where the Fed plans to take rates in 2025 is what will interest markets more.

 American flags are seen outside the New York Stock Exchange in New York City, New York, U.S., March 13, 2020. REUTERS/Lucas Jackson

Donald Trump's election victory last month has left investors with a lot of questions about the economy in 2025.    

Will Trump push ahead with blanket tariffs on U.S. imports? Will these tariffs be inflationary? And how will the Fed react?

For now, markets are pricing in just two more quarter-point cuts in 2025, assuming the Fed lowers rates on Wednesday.

Should the Fed lower interest rates next week, it will mean a total 100 basis points of easing this year - the same amount delivered by the European Central Bank (ECB) in 2024 after it  lowered borrowing costs on Thursday for the fourth time.

But while ECB president Christine Lagarde left the door open for more rate cuts next year, the ECB president refused to commit to a particular rate path, leaving some investors scratching their heads.

Markets have been betting that the euro zone's central bank would cut rates at every meeting through the first half of next year, possibly even faster, with inflation back near target and growth remaining sluggish.

Those expectations were little changed after Thursday's decision, with the deposit rate seen falling to roughly 1.75% by the end of next year.