Pen and calendar on a wooden table

The Fed keeps interest rates unchanged

9th December 2023 – 16th December 2023 | Another week in the markets

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Source: MarketWatch 

Hello Saturday,

This week, the Federal Reserve keeps interest rates unchanged, Sensex crosses into historic 71,000 terrains for the first time, and Adobe reports a record high of $5 billion in revenue in a single quarter.

  • The Federal Reserve opted to keep interest rates unchanged for the third time in a row, triggering a relief rally in the markets. Meanwhile, Fed officials projected three quarter-point rate cuts in 2024, spurring a new burst of inflows into equity markets.
  • Fuelled by strong FII buying, Sensex raced past the 71,000 level in a bull rally that ended in green for the seventh consecutive week. On Friday alone, FIIs purchased shares worth over ₹9,239 crore, whereas DIIs booked profits, selling shares worth  ₹3,077 crore. 
  • Adobe Inc. reported a 12% jump on a Y-o-Y basis in its topline growth, which scaled past $5.1 billion for the fourth quarter of 2023. The company said that it had delivered record revenue of $19.41 billion in 2023, growing at a steady rate of 10%
  • The dollar fell by over 1% against other major currencies after the Federal Reserve indicated that it could likely be reaching the end of its rate hike cycle. The benchmark 10-year Treasury yields plunged to 3.9% indicating further dollar weakness.

Taking stock | Fed pulls a Santa | Sensex soars | Adobe’s home run | Dollar doldrums | Invest wisely | Another week in the markets

Taking stock

Investors cheered on as all three major US indices closed in positive territory this week. Cooler-than-anticipated inflation numbers coupled with dovish commentary by the Federal Reserve Chair Jerome Powell propelled the bourses to a seventh straight week of gains. The year-end rally seems to be on a near-unstoppable roll. Dow Jones closed 2.92% higher, the S&P 500 increased by 2.49%, while Nasdaq surged by 2.85% weekly. 

Fed pulls a Santa

Chair Jerome Powell might as well have donned a Santa hat, considering the market’s response to his rate hike cycle commentary. On Wednesday this week, Chair Powell took to the podium and said that the “policy rate is likely at or near its peak for the tightening cycle”, opening the floodgates to funds roaring back into all three major US indices. 

Simultaneously, projections from other Fed officials pencilling in three rate cuts for the next year also gave market players much-needed grist to support a bullish outlook. 

In his address after the FOMC meeting, Chair Powell marked out that he was acutely aware of the risk of unnecessarily damaging the economy by keeping the interest rates high for too long. Powell said that Fed officials had started entertaining the idea of rate cuts after looking at the sharper-than-expected fall in inflation figures. 

As per their latest projections, the US central bank expects core inflation – which strips out farm and fuel prices – to rise by 3.2% this quarter as opposed to the September-quarter projection of 3.7%. Core inflation has been estimated to be at 2.4% by the end of 2024, quite close to the Fed’s inflation target of 2% by the end of 2024.

Enthusing the markets further were comments from US Treasury Secretary Janet Yellen, formerly Chair of the Federal Reserve. In an interaction with the media, she said that the US economy can, indeed, pull off a soft landing. She also said that inflation has been on a meaningful decline, and it will progressively move downwards as per the Fed’s mandate and targets.

Sensex soars

India’s benchmark index, Sensex, soared to a record high of 71,000, powered by strong FII buying and benign cues from the global economy. Foreign Institutional Investors made a resounding return, purchasing a whopping $5 billion in equities in December till now. On the last day of the week – even as DIIs booked profits – FIIs pooled in over ₹9,239 crore in equities. 

Prominent among the outperformers were IT majors like TCS, HCL Tech and Infosys. All three companies rose on expectations of demand recovery in the US markets and a dramatic turnaround in AI-based business deals.

Meanwhile, the other benchmark index, Nifty, also rallied over 3% this week, driven by abundant liquidity. It helped that India’s central bank, RBI, revised the GDP growth rate for FY24 from 6.5% to 7%. Strong domestic industrial production numbers and a healthy manufacturing PMI supported the equity market rally further.

BSE chart

Source: Google Finance

Adobe’s home run

Adobe reported a stellar 12% topline growth for the last quarter of 2023. The multinational software company logged a revenue of $5.05 billion for Q4FY2023 and a record-breaking revenue of $19.41 billion for the entire year. 

The cash flows from operations for the company stood at $1.60 billion. The Remaining Performance Obligations (RPOs) exiting the quarter amounted to an impressive $17.22 billion. The company also repurchased approximately 1.8 million shares during the quarter, delivering an emphatic message about its strong growth prospects.

Adobe’s digital media segment reported 11% revenue growth, raking in a neat $14.22 billion. Creative revenue grew to $11.52 billion, representing a 10% rise. On the other hand, document cloud revenue stood at $2.70 billion, surging by 13%. Additionally, the digital experience segment revenue clocked in $4.89 billion and Digital Experience subscription revenue stood at $4.33 billion, growing by 12%. 

Dollar doldrums

The US dollar index is headed for one of its steepest falls since July in the wake of the dovish Federal Reserve commentary. Indications from Chair Powell that the capping of the rate hike cycle “was in view” triggered a fall in the benchmark 10-year US Treasury yield. The yield on the 10-year Treasury ended the week at 3.915%, effectively breaching the four-month low of  3.945%.

The US dollar index, which is a gauge of the strength of the US currency measured against six other major global currencies, slumped by 0.02% to 101.94, distressingly close to the four-month low of 101.76.

Currency trade analysts hint that the dollar index is on course to shed a little over 2% this week, primarily because of rate cut possibilities prophesied for next year. 

Invest wisely 

The US Federal Reserve has brought in the Christmas cheer earlier than usual. A new bull run seems to be concretising even as inflation remains under control and growth moderates while the labour market tightens. Within the Indian ecosystem, the FIIs seem to have woken up to the promise and potential of the enormously large Indian customer base and the allure of the corporate growth narrative. 

Navigating the ups and downs of the US economy and understanding the macroeconomic perspective of institutional investors is straightforward, provided you have the right partner guiding you along the way. With the Appreciate app, you can seamlessly invest in the US markets and secure your wealth from sudden market swings.

Warm regards,
Another week
in the markets

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