Fall in US Treasury yield, "Santa Claus rally" still hindered, Wells Fargo Bank predicts Fed will only cut interest rates once next year!

On the second-to-last trading day of 2024, the yield on US Treasury bonds experienced a decline. The 10-year Treasury bond yield fell by approximately 7 basis points to 4.547%, slightly lower than the multi-month high point of last week; the 2-year Treasury bond yield dropped by 7 basis points to 4.254%. Bond yields move in the opposite direction to prices, with each basis point equivalent to 0.01%. Investors are focusing on the US economic outlook and the Federal Reserve's monetary policy direction in 2025 as the year-end approaches. Earlier this month, the Federal Reserve meeting hinted that the number of future rate cuts may be fewer than previously expected by the market. Brian Rehling, the head of global fixed income strategy at Wells Fargo Investment Institute, pointed out that the Fed's rate-cutting cycle is nearing its end, and he expects only one additional rate cut next year. This assessment is based on the strong current performance of the US economy and persistent inflation. Despite the recent rate cuts by the Federal Reserve, long-term interest rates continue to rise, reflecting reduced market expectations for further central bank action. According to the FedWatch tool from CME Group, the market currently expects the first rate cut to possibly occur in May 2025. Economic data released on Monday showed that pending home sales in November hit a new annual high, but the Chicago Purchasing Managers' Index (PMI) was only at 36.9, below economists' expectations of 42.2. In addition, initial jobless claims slightly decreased as of December 21, but continued jobless claims rose to the highest level since November 2021. All three major US stock indices fell on Monday, with the S&P 500 and Nasdaq each dropping by more than 1%, indicating that the traditional "Santa Claus rally" may face challenges. Although the S&P 500 had a strong rally earlier this year, pushing valuations to highs, the recent rise in Treasury bond yields is putting pressure on the stock market, and both the S&P 500 and Dow Jones indices are facing their weakest monthly performance since April. David Morrison, Senior Market Analyst at Trade Nation, stated that the high yield environment could pose strong resistance for the stock market, as investors may prefer the relatively secure yields of US Treasury bonds over the more volatile stock market. Meanwhile, the market is closely monitoring the issue of the US debt ceiling. Treasury Secretary Janet Yellen stated that the Treasury Department may take "extraordinary measures" as early as January 14 to avoid default on the debt, making this issue a key focus for the market in the coming weeks.