U.S. stocks extended gains Thursday, while Treasury yields and the dollar retreated firmly, as markets begin to fully digest the impact of yesterday's Federal Reserve rate decision and the prospect of an end to the central bank's historic policy tightening.
The Fed left its benchmark lending rate unchanged at between 5.25% and 5.5% for a second consecutive month but indicated that a resilient economy, a solid labor market and elevated price pressures could require further increases in order to see inflation return to the Fed's 2% target.
Fed Chairman Jerome Powell's comments to the media following the rate announcement, however, suggested markets are now betting that the Fed, which has raised rates 11 times over the past two years to the highest levels in more than two decades, is unlikely to agree on another increase.
"Following the Fed’s changes to their policy statement and Chair Powell’s subtly altered forward guidance, as well as the recent run-up in long-term interest rates, we're forecasting for the Fed to hold the fed funds target steady at their next few decisions," said Bill Adams, Chief Economist for Comerica Bank in Dallas. "It is becoming more likely that the Fed’s next policy move will be a rate cut."
The CME Group's FedWatch tool indicates no better than a 26% chance of a rate hike over the next four meetings, taking markets into June, with the odds of a cut at that meeting pegged at 40.7%.
Related: Fed holds rates steady, hints at more increases but markets see end of hiking cycle
Benchmark 10-year notes yields tumbled in the wake of the Fed decision and Powell's press conference, falling 15 basis points for the biggest single-day decline since March. The paper was last seen trading 5 basis points lower on the session at 4.674 % in New York dealing.
At the shorter end of the curve, 2-year notes were trading 1 basis points lower at 4.981%, with the broader bond market pullback linked also to a weaker-than-expected reading for manufacturing activity from the October ISM survey, a modest increase in quarter auction borrowing plans from the Treasury and a soft reading from ADP's national employment report.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.71% lower at 106.124
The Labor Department published weekly jobless claims data prior to the start of trading, with Friday's non-farm payroll report up next, as markets continue to track wage developments in the labor market for clues as the pace and persistency of near-term inflation.
Around 217,000 people filed for new benefit applications over the period ending on October 28, a 5,000 increase from the prior total, taking the four-week average to around 210,000.
On Wall Street, markets will be focused on both the bond market reaction to yesterday's events, as well as what could be a crucial fourth quarter earnings report from Apple AAPL after the closing bell.
Related: Apple earnings preview: iPhone 15 outlook in focus as China demand, US upgrade rates weaken
Heading into the final hours of the trading day, the S&P 500 added 76 points, or 1.8%, to last night's 1.05% rally, with the Dow Jones Industrial Average rising 508 points, or 1.53%.
The tech-focused Nasdaq, which has booked its best three-day gain in percentage terms since March, was up 220 points, or 1.68%.
In overseas markets, Britain's FTSE 100 closed 1.42% higher in early London trading after the Bank of England's next rate decision.
As expected, the Bank held rates steady at their 15-year high of 5.25% as the broader economy show signs of slowing and growth in Europe looks headed for recession.
Overnight in Asia, a weaker dollar and the follow-on rally from Wall Street liked the MSCI ex-Japan index 1.17% higher into the close of trading, with the Nikkei 225 ending 1.1% higher in Tokyo.
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