Why Dec. 10 Could Be a Big Day for the S&P 500
Key Points
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The next Federal Open Market Committee meeting is scheduled for Dec. 10.
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There's a high a probability that interest rates will be cut at that meeting.
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A reduction in interest rates is generally good news for the stock market.
As of Dec. 1, the S&P 500 (SNPINDEX: ^GSPC) was up 16% this year. It's an impressive performance when you consider that it was up by more than 20% in each of the previous two years. Despite strong gains in recent years, the broad index has continued to rise in value, as market conditions remain strong.
But whether it can continue to rise will depend on whether the economy still looks to be in good shape. Investors often look to the relevant data to gauge how strong the economy is. And if there are concerns, that can result in a pullback in the overall market.
One particularly important date to circle is Dec. 10. Here's why that day could be very significant for the market and chart a path for the S&P 500 for the rest of the year.
The next Fed meeting takes place on Dec. 10
The Federal Open Market Committee (FOMC) has eight meetings over the course of the year, and the last one for 2025 is set for Dec. 10. That's when investors will learn whether interest rates will come down. A rate cut would be good news for growth stocks and the market as a whole because it makes it less costly to borrow money, which is favorable for risky companies.
According to the FedWatch tool from the CME Group, a derivatives exchange, there's an 87% chance that the Fed will cut interest rates by 25 basis points at the next meeting, putting the federal funds rate within a range of 3.50% and 3.75%. With the market looking like it's expecting a rate cut (and is thus pricing it in), if there's a potential surprise and that doesn't happen, that could spook investors and result in a dip in the S&P 500. But what may be even more important than the actual decision itself is the overall outlook for the economy.
More data will provide a clearer chart of the economy's direction
When the interest rate decision comes out, investors will also gain insights into Jerome Powell's view of the economy in light of the data up to that point. What Powell, the Federal Reserve chairman, will say arguably has more weight in the market than just the individual rate decision. His outlook can give investors insight into how likely there will be more rate cuts on the horizon.
As more data comes out, including job numbers, that will affect Powell's assessment of what direction the economy is going in, which is why his outlook will be so important. If there are signs the economy isn't doing well, that could make investors hesitant about remaining in the market since they may anticipate a worse performance for the S&P 500 in the near future.