In December, U.S. stock and bond markets experienced a significant rally, rounding off a robust year. This surge came after Federal Reserve Chairman Jerome Powell hinted at an end to interest rate hikes, a move that caught the markets off guard. This was particularly surprising given Powell’s earlier comments on December 1, 2023, where he deemed it “premature” to discuss interest rate cuts. Yet, in a notable shift, just 12 days later, he acknowledged that interest rate cuts were “a discussion for us at our meeting today.”
The banking sector witnessed significant upheavals, with the collapse of Silicon Valley Bank in March and the failure of First Republic in May — the latter marking the second-largest bank failure in U.S. history. Paradoxically, these events spurred positive market reactions as the Federal Reserve infused liquidity via the Bank Term Funding Program (BTFP). By the end of the year, the BTFP’s value escalated to over $135 billion, a significant jump from under $65 billion at the end of March.