US stocks are recovering from the worst sell-off since August

Stay up to date with free updates

Simply log in US stocks myFT Digest – delivered straight to your inbox.

U.S. stocks rallied on Thursday, shaking off some of the gloom created by the Federal Reserve’s hawkish policy meeting the previous day that sent stocks reeling worldwide.

The S&P 500 was up 0.8 percent by midday on Wall Street, but below previous levels that had pushed it up more than 1 percent. The most important US stock barometer slipped almost 3 percent on Wednesday, the sharpest decline since August.

“Any decline is a buying opportunity right now,” said Steve Sosnick, chief global strategist at Interactive Brokers. “One could argue the selling was overdone, but seeing the market recover…” . . just tells you that traders are programmed to buy on dips, no matter the reason.”

The tech-heavy Nasdaq Composite gained 1 percent after falling 3.6 percent on Wednesday. Six of the “Magnificent Seven” tech giants – Apple, Microsoft, Alphabet, Amazon, Meta and Nvidia – have made progress. However, Tesla, boosted in part by co-founder Elon Musk’s good relations with President-elect Donald Trump, slipped 1 percent after falling 8 percent in the previous session.

“We’ve been so focused on Trump (in recent weeks), but right now it seems almost like a Jay Powell-style stock market again,” said Jeff Weniger, head of equity strategy at WisdomTree, referring to the chairman the Fed.

In bond markets, the yield on the benchmark 10-year Treasury note rose another 0.05 percentage points to 4.55 percent, its highest level in more than six months, after rising sharply on Wednesday. The dollar gained another 0.2 percent against a basket of peers on Thursday, after rising to its highest level since November 2022 in the previous session.

The Fed cut interest rates by a quarter point on Wednesday, but rattled investors after it raised its inflation forecasts for 2025 and scaled back its forecasts for further rate cuts. It was the central bank’s last meeting before Trump takes office next month.

Concerns that inflation could stagnate above 2 percent contributed to Fed officials forecasting only half a percentage point worth of cuts in 2025, down from a full percentage point in their previous forecasts in September.

“I think the market was expecting the Fed to cut rates, but also maintained the possibility of further cuts next year,” said Akshay Singal, global head of short-term rates trading at Citigroup.

Instead, the Federal Reserve has made a significant change in policy and has given itself more of an opportunity to “keep interest rates on hold for a period of time” to absorb any impact of looser fiscal policy, he added, predicting that the hawkish rhetoric will weigh on the dollar would boost further.

According to CME Group data based on federal funds futures, investors now see about an 85 percent chance that the Fed will either refrain from cutting rates or cut rates once or twice next year.

The Fed’s hawkish outlook ricocheted on markets in Europe and Asia on Thursday. Europe’s benchmark Stoxx 600 fell 1.5 percent and Britain’s FTSE 100 fell 1.1 percent. Previously, the markets in India, Japan, South Korea and Hong Kong also closed in the red.

Emerging market stocks were also affected, with MSCI’s broad EM index falling 1.1 percent.