The Federal Reserve cut its benchmark interest rate on Wednesday to a range of 4.25% to 4.5%, bringing the decline since mid-September to 100 basis points.
Wall Street typically celebrates rate cuts because lowering borrowing costs boosts spending, investment and hiring. Lowering interest rates also signals that inflation is under control and makes risky assets such as equities relatively more attractive by lowering interest rates on safer assets such as government bonds.
Still, stocks tumbled as Fed officials predicted two cuts next year, down from four previously.
The S&P 500 and Dow Jones fell almost 3%, while the Nasdaq 100 fell almost 4% after the meeting. The sharp drop caused a 74% rise in the VIX, better known as the stock market’s fear gauge. It was the second largest single-day jump in history.
But while many market professionals are still urging caution amid fewer rate cuts through 2025, a number of Wall Street analysts are seeing Wednesday’s sell-off as a “buy the dip” opportunity, with the intense reaction to the Fed meeting pushing interest rates higher. unlikely to derail this year. Sinterklaas meeting.
Here’s what investors and analysts are saying after Wednesday’s brutal sell-off.
Investors “overreacted” because they knew going into the meeting that the Fed was likely to announce a pause in rate cuts, Schleif said.
Plus, the economy remains strong, which is the most important thing, she added.
“Markets seemed to ignore the number of times and ways in which Chairman Powell noted how strong the economy is,” Schleif said. “The slower pace of Fed cuts is for good reason: the economy is strong, and a strong economy is ultimately the most important thing for stocks and profits.”
Economists at Citi said the Fed’s hawkish stance was unlikely to last long and would instead turn dovish once the labor market showed signs of weakening.
With only 50 basis points of rate cuts priced into the market between now and mid-2026, Hollenhorst isn’t buying this.
“The continued weakening of the labor market is likely to become even more pronounced in the coming months, causing the Fed to cut spending faster than markets are pricing in,” Hollenhorst said in a note on Wednesday. “We expect a sharp, dovish turn from Powell and the committee in the coming months.”
Ives said the Fed’s rate path won’t be the driving force for tech stocks in the coming years.
“Ultimately, this will not lead to a soft landing and a bullish backdrop for risky assets,” Ives said in a note to clients.
Instead, Ives told his clients to remain focused on the two biggest enablers for technology heading into 2025: the continued development and adoption of AI and a friendlier regulatory environment that should pave the way for more mergers and acquisitions.
‘US markets played the role of Scrooge on Wednesday and plunged as the Federal Reserve’s hawkish tone dampened the celebrations.
“Investors should see this as a healthy way to take profits, and not as an end to the party after what has been a fantastic market run since the US elections.”
“This is a Fed that truly lacks confidence in its position at any point and is willingly reactive rather than proactive, even as its actions impact the economy with a long lag.
“You would think that, between the commentary and the predicted changes, the world has changed dramatically since the jumbo rate cut just three months ago. Clearly it won’t take much to get this Fed to change its position. I can guarantee this will happen. shift again.”
“We had an inflation forecast for the end of the year, but it has fallen apart a bit.”
‘Not exactly the confidence-inspiring statement you would expect from a Fed chairman. But Jerome Powell’s performance at yesterday’s press conference was not his finest hour. In what might have been the most awkward display of his tenure, Powell ceded the stage to the hawks, visibly tense as he tried to sell a strategy he didn’t seem to fully endorse.
“Powell signaled that inflation is ‘moving sideways’ and ‘increasing uncertainty’ around its trajectory. These admissions show a central bank increasingly uncertain about its position, with interest rate markets now expecting just one cut before 2025 (as we do), and with no real consensus. about when that final cut would come.”
“Markets have a bad habit of overreacting to Fed policy moves. The Fed hasn’t done or said anything that differs from what the market expected. This is more like: I’m going to the Christmas holidays, so I’ll sell.” and early next year.
“The good news is that this 10-day sale should pave the way for a Santa Rally starting next week.”
“Santa came early and dropped a 25 basis point rate cut on the market supply, but accompanied this with a note saying there would be coal next year.
“The market is looking ahead and ignoring the good news of today’s rate cut and instead focusing on the scarcity of rate cuts next year.”
“What was heard from the Fed last night to accompany the rate cut is a showstopper for the stock market.
‘The Fed is sending a clear signal that it has almost completed the phase of interest rate cuts. The year 2025 will mark a major break in the Fed’s rate-cutting cycle.
Trump’s blessing could quickly turn into a curse. If the market expects rates to rise further, the Fed is unlikely to act against these forces. If inflation rates continue to rise in January and February, that could be the problem for the economy. interest rate cuts.”
“While the Fed is taking all the pressure for today’s sell-off, a reality check on the overbought environment, deteriorating market breadth and rising rates was arguably overdue.
“Overall, today’s FOMC meeting brought with it some unwanted clouds of uncertainty about monetary policy next year. At the very least, market expectations have shifted to a shallower and slower-than-expected rate cutting cycle. Technically, near-term risk remains for 10-year Treasury yields, likely creating headwinds for equities.”
“The Fed has poured cold water on already dwindling market expectations for generous rate cuts in 2025.
“Given the risk of a resurgence in inflation due to potential trade tariffs and a slowdown in immigration that has eased labor market pressures, market expectations of just two more cuts in 2025 now appear reasonable.
“We expected this policy outcome, so it doesn’t change our recently upgraded view on US equities. US stocks can still benefit from AI and other mega forces, robust economic growth and broad-based earnings growth – and we see them outperforming global peers. by 2025.”
“With the economy going gangbusters and an incoming president with a loose budgetary agenda, you wonder why the Fed felt it necessary to make cuts.
“Is this to curry favor with the new administration or is there a bump in the road that the Fed can see that the rest of us are missing.”
“The FOMC made about the sharpest cuts they could muster yesterday, and market participants weren’t particularly happy with what they heard.
However, it was a bit confusing to see such a violent market reaction to Powell’s comments, especially considering that ‘every man and his dog’ had expected this kind of reversal in the run-up to the meeting.
“However, it feels like markets have overreacted to Powell’s message, and we may have reached some kind of aggressive extreme here.
“That’s why I would be a dip stock buyer here, as strong earnings and economic growth should continue to lead the path of least resistance to the upside, offsetting the fading impact of the ‘Fed Put’.”
Correction: December 19, 2024 — An earlier version of this story incorrectly mentioned an investment firm. It’s BMO Private Wealth, not BMP Private Wealth.
The name of the Rabobank analyst, Stephen Koopman, was also incorrectly stated. He is Stefan Koopman.
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