But while many market experts are still urging caution amid fewer rate cuts in 2025, a number of Wall Street analysts see Wednesday’s sell-off as a “buy on the dip” opportunity as the intense reaction to the Fed meeting is unlikely to derail this year’s performance. Santa Claus” rally.
Here’s what investors and analysts are saying after Wednesday’s brutal selloff.
Investors were “overreacting” because they knew going into the meeting that the Fed was likely to signal a pause in rate cuts, Schleife said.
Besides, the economy remains strong, which is the most important thing, he added.
“Markets seemed to ignore the many times and ways that President Powell has indicated how strong the economy is,” Schleife said A strong economy is ultimately what matters most to stocks and earnings.”
Citi economists say the Fed’s hawkish turn likely won’t last and will instead reverse itself once the labor market shows signs of easing.
With only a 50 basis point cut in market rates by mid-2026, Hollenhorst isn’t buying it.
“Continued easing in the labor market is likely to become more evident in the coming months, keeping the Fed tapering at a faster pace than markets are pricing in,” Hollenhorst said in a note on Wednesday sharp turn”.
Ives said the Fed’s rate path is not what will be the driving force for tech stocks over the next few years.
“Ultimately it doesn’t move the needle for a soft landing and a rising backdrop of risk assets,” Ives said in a note to clients.
Instead, Ives told his clients to stay laser-focused on the two biggest technology catalysts leading up to 2025:
“US markets played Scrooge on Wednesday, falling as the Federal Reserve’s hawkish tone dampened holiday cheer.
“Investors should see this as a healthy point of profit-taking, not the end of the party, after a fantastic run for markets after the US election.”
“This is a Fed that doesn’t really believe its own view at any point and is reactive as opposed to proactive, even though its actions have long lags in affecting the economy.
“You’d think the world has changed dramatically since the rate cut just three months ago. It obviously doesn’t take much for this Fed to reverse its view. I can guarantee it will.” shift again.”
“We had an inflation forecast at the end of the year and it’s kind of collapsed.”
“Not the confidence-inspiring line you might expect from the Fed chairman. But Jerome Powell’s speech at the press conference yesterday was not his finest hour. Powell gave way to the hawks as he tried to sell a strategy, which he didn’t seem to fully approve of.
“Powell noted inflation ‘moving sideways’ and ‘higher uncertainty’ around his trajectory. These admissions show that the central bank is increasingly uncertain at its core, with interest rate markets now expecting just one cut in 2025 (as we are does), and with no real consensus on when that final cut will come.”
“Markets have a really bad habit of overreacting to Fed policy moves. The Fed hasn’t done or said anything that deviates from what the market expected; this looks more like I’m going on Christmas break so I’ll sell and start next year.
“The good news is that this 10-day selloff should pave the way for a Santa rally leading into next week.”
“Santa came early and cut the market rate by 25bp, but accompanied it with the note that next year there will be coal.
“The market is forward-looking and ignored the good news of today’s rate cut and instead focused on the paucity of rate cuts for next year.”
“What we heard from the Fed last night as an accompanying rate cut is an indicator for the stock market.
“The Fed is sending a clear signal that it is almost done cutting rates. 2025 will be a significant break in the Fed’s rate-cutting cycle.
“Trump’s blessing could quickly turn into a curse. If the market expects yields to rise further, it’s unlikely the Fed will intervene against those forces. If inflation data continues to rise in January and February, it might.” interest rate cut”.
“While the Fed is taking all the heat for today’s selloff, a reality check from overbought conditions, worsening market breadth and rising interest rates was probably overdue.
“Overall, today’s FOMC meeting brought back some unwanted clouds over monetary policy next year. At the very least, market expectations have shifted to a shallower and slower-than-expected rate cut. Technically, the 10-year Treasury yield rises.” potential headwinds for stocks”.
“The Fed has poured cold water on the market’s hopes for a generous rate cut in 2025, which is already bearish.
“Given the upside risk to inflation from potential trade tariffs and the slowdown in immigration easing pressure on the labor market, market expectations for two more cuts in 2025 now look reasonable.
“We expected this policy outcome, so it doesn’t change our recently upgraded view on US stocks. US stocks could still benefit from AI and other mega forces, robust economic growth and broad-based earnings growth, and we see they surpass their international counterparts in 2025.”
“With the economy going haywire and the incoming president with a fiscally lax agenda, you wonder why the Fed felt it necessary to taper.
“Is this a boon for the incoming administration, or is there a bump in the road that the Fed may see the rest of us missing?”
“The FOMC delivered about as hawkish a cut as they could muster yesterday, and market participants weren’t particularly happy with what they heard.
“But it was a little surprising to see such a strong market reaction to Powell’s words, especially given how ‘every man and his dog’ was expecting such a turnaround ahead of the meeting.”
“However, it appears that the markets have overreacted to Powell’s message and that we may have reached something of an extreme here.
“Therefore, I would be a buyer of the stock here as strong earnings and economic growth should see the path of least resistance continue to lead to the upside, offsetting the fading impact of the Fed Put.”
Correction: December 19, 2024 – An earlier version of this story misstated the investment firm as BMO Private Wealth, not BMP Private Wealth.
It also misstated the name of the Rabobank analyst as Stephen Koopman.
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