🎁 Jay Claus

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Do we like Jay Claus or Santa Powell? Either way, it's Christmas morning on Wall Street. Let's get into it.

By Allison Morrow

Dow	37,090.24	1.40%
S&P 500	4,707.09	1.37%
NASDAQ	14,733.96	1.38%

Last updated December 13 at 6:59 PM ET

🎁 SANTA POWELL

Susan Walsh/AP

As we noted here yesterday, sometimes boring and predictable is the best. Wall Street clearly agrees.

See here: US markets soared Wednesday in response to the Federal Reserve's decision to hold interest rates steady for the third time in a row. This was probably the most predictable outcome of almost any Fed meeting ever, but nonetheless investors responded like it was a Christmas miracle.

The Dow hit a record high, rising 1.4% to closing at 37,090 — blazing past its previous record of 36,799, reached nearly two years ago.
The S&P 500 and Nasdaq both gained 1.4%.

If it felt like Christmas came early, it's because the Fed's final meeting of 2023 signaled a soft landing and rate cuts are on the horizon.

"From our vantage point, that is about the best holiday gift a central banker can bestow upon the investment community, policymakers and the public," wrote economist Joseph Brusuelas of RSM.

The Fed has raised rates 11 times since March 2022, administering a treatment for inflation that is at times more painful than disease. Higher interest rates eat into corporate profits, which Wall Street hates. And they make it more expensive for consumers to borrow money, which, obviously, sucks for all of us consumers (especially if, heaven help you, you're trying to buy a house in 2023).

Investors reacted today as if the pain is all over now and rate cuts will be popping up like daffodils in just a few months.

If only it were that simple.

While traders popped champagne, Fed Chair Jay Powell was trying to inject a Grinch-y dose of reality.

In his post-meeting news conference, Powell reiterated that additional rate hikes remain on the table.

"No one is declaring victory" just yet, and doing so would be "premature," he said. But Powell admitted that officials are, at the very least, already discussing rate cuts.

A key question for the Fed early next year will be: What are the criteria for rate cuts?

So sayeth Powell: "You want to be reducing restriction on the economy well before 2%." Waiting to cut rates until inflation reaches 2% would be "too late."

My colleague Bryan Mena has more.

NUMBER OF THE DAY

$621 million

Airbnb agreed to pay 576 million euros ($621 million) to settle a dispute with Italian officials over unpaid taxes.

Prosecutors in Italy had said the company owed as much as $840 million in short-term rental taxes that it had failed to pay on behalf of hosts. They said that Airbnb generated around nearly $4 billion in rental income in the country between 2017 and 2021, of which 21% was due in taxes. (Airbnb had argued in a European Union court that the tax on short-term rentals, introduced in 2017, was not legal under the bloc's regulations, but it lost the case last year.)

The company said Wednesday it would introduce new tools for hosts to have their taxes withheld automatically by Airbnb and paid to the Italian authorities directly on their behalf.

🚗 MUSKIAN BLUSTER

Elon Musk's pitch to the world is, in a nutshell: I make the best stuff, so I can say whatever I want.

"Whether you hate me, like me, or are indifferent, do you want the best car or not the best car?" he said at the New York Times DealBook Summit last month.

The problem is, Musk's incessant bluster isn't limited to his social media presence or his (very rare) interviews with media. His grand promises also make it into the official marketing materials that his crown jewel, Tesla, uses to sell cars and keep its stock (the source of most of Musk's wealth) in the stratosphere.

That's how Tesla owners wound up with a feature called "Autopilot" that is now the subject of a two-year investigation by US safety regulators that led the company to recall nearly 2 million cars this week.

Despite its name, the Autopilot feature, which now comes standard on new Teslas, does not let the car drive itself. Another more-advanced feature called "Full Self Driving," or FSD, costs an additional $12,000 and is similarly not intended to let the person behind the wheel take their eyes off the road or their hands off the wheel.

But Tesla has repeatedly marketed its Autopilot system as one that allows cars to drive themselves. In a 2016 video that remains on Tesla's website, one of the company's first Autopilot demonstrations, begins: "The person in the driver's seat is only there for legal reasons. He is not doing anything. The car is driving itself."

The National Highway Traffic Safety Administration, which investigated nearly 1,000 crashes involving Teslas, said the Autopilot system can give drivers a false sense of security that the car can drive itself in certain situations and be easily misused.

Tesla, which dissolved its public relations department in 2020, didn't respond to a request for comment. Neither Tesla nor Musk have issued statements on the recall.

These driver-assist systems are the backbone of the business model that has made Tesla the most valuable automaker on the planet despite it having just a fraction of its competitors' sales.

Investors are gorging on the hype. Tesla's stock is up more than 110% for the year. Over the last five years, the stock has climbed more than 840%, vaulting Musk to the status of world's wealthiest person.

As for the Full Self-Driving system's well documented issues with swerving unexpectedly, charging through stop signs and plowing into emergency vehicles? The Tesla bulls aren't too worried. Tesla's stock rose along with the rest of the market on Wednesday.

"Tesla's FSD capabilities continue seeing increased traction in the market despite several questions surrounding the safety of this software," said Wedbush analyst Dan Ives in a note to clients. "We view this as another incremental value driver in the TSLA growth story over the coming years."

And with that kind of positive reinforcement, Musk's hype only builds on itself. In October, Musk razzle-dazzled investors with talk of how Tesla's investment in artificial intelligence will be a game-changer for its all-important self-driving systems.

In the long term, he said, AI "has the potential to make Tesla the most valuable company in the world by far…If you have fully autonomous cars at scale and fully autonomous humanoid robots that are truly useful, it's not clear what the limit is."

But Tesla isn't there yet. Far from it, despite its features' automated-sounding branding.

Official Tesla manuals state unequivocally that human drivers need to stay alert while using these features, though that hasn't stopped people from trying. (The auto news site MotorTrend keeps a running list of Autopilot and Full Self Driving crashes.)

Of course, it's a CEO's job to tout their company's products and create value for shareholders. But Muskian hyperbole about Tesla's self-driving capabilities is especially risky because of the nature of the product: Driver-assist technology, while increasingly common in vehicles beyond Teslas, remains largely unregulated.

So it's an honor system: Keep your hands on the wheel, of course. Don't doze off, of course. Don't text, of course. But wink-wink, this thing really can drive itself.

WHAT ELSE IS GOING ON?

🤖 OpenAI struck a deal with publishing giant Axel Springer that will allow the ChatGPT owner to train its artificial intelligence models on stories produced by outlets including Politico and Business Insider.

💰 Former BP CEO Bernard Looney is forfeiting $40 million in severance pay because the company's board determined he engaged in "serious misconduct" for not fully disclosing his relationships with employees.

💊 The Supreme Court agreed to review a decision that limits access to the abortion pill mifepristone.