The market endured a heavy sell off throughout August and September after the Fed signalled at its last meeting that another rate rise may be required this year in order to tame stubbornly elevated inflation – a prospect that subsequently triggered a surge in U.S. Treasury yields.

After a two-month sledding the U.S. benchmark index rebounded this week as policymakers at the Federal Reserve are becoming optimistic that the recent rise in Treasury yields could finally put an end to the historic interest rate hikes over the past 19 months.

Given the shift in tone in recent days from Fed members investors are also becoming increasingly hopeful that there won’t be further tightening of monetary policy. According to the CME FedWatch Tool the odds of another interest rate hike by the Fed in November are falling.

Financial markets currently see a nearly 90% chance the U.S. central bank will keep rates unchanged at its next policy meeting to be held on the 1 ^st of November. A month ago, those odds were at 57%. The majority of traders are betting that there will be no more hikes and that the Fed will hold rates steady through Q2 2024, before loosening policy.

Source: TradingView, S&P 500 Index

The latest rally was driven in part by dovish statements from Federal Reserve officials, who said that the recent spike in U.S. Treasury yields to 16-year highs could lessen the need for the central bank to hike borrowing costs further in the short term. However, with the prospects of the U.S. falling into a mild recession in 2024, the index may face a choppy rise.