But while many market experts are still urging caution over smaller rate cuts in 2025, a number of analysts on Wall Street see Wednesday’s sell-off as a buy-the-dip opportunity, with the strong reaction to the Fed’s meeting is unlikely to derail this year’s developments. Santa Claus rally.
That’s what investors and analysts are saying after Wednesday’s brutal selloff.
Investors “overreacted” because they knew before the meeting that the Fed would likely signal a pause in interest rate cuts, Schleif said.
Furthermore, the economy remains strong, which is the most important thing, she added.
“Markets seemed to ignore how often and in what ways Chairman Powell pointed out how strong the economy is,” Schleif said. “There’s a good reason for the slower pace of Fed cuts: The economy is strong, and a strong economy is ultimately what matters most to stocks and earnings.”
Economists at Citi said the Fed’s hawkish stance was unlikely to last and would instead adopt a dovish stance once the labor market showed signs of weakening.
Since only 50 basis points of interest rate cuts are priced into the market by mid-2026, Hollenhorst doesn’t believe in it.
“The ongoing weakening of the labor market is likely to become more pronounced in the coming months, meaning the Fed will cut interest rates faster than markets expect,” Hollenhorst said in a note on Wednesday. “We expect Powell and the committee to significantly ease monetary policy in the next few months.”
Ives said the Fed’s interest rate path won’t be the driving force for tech stocks in the next few years.
“Ultimately, it does not help create a soft landing and a bullish environment for risky assets,” Ives said in a note to clients.
Instead, Ives urged his clients to focus on the two biggest catalysts for the technology through 2025: further development and adoption of AI and a friendlier regulatory environment that should pave the way for more mergers and acquisitions.
“U.S. markets played the role of Scrooge on Wednesday, tumbling as the Federal Reserve’s hawkish tone dampened holiday spirit.
“Investors should see this as a healthy profit-taking opportunity rather than an end to the party after markets have enjoyed a fantastic run since the US election.”
“This is a Fed that really lacks confidence in its view at any point and is reactive rather than proactive, even though its actions have a long lag in impacting the economy.”
“One would have thought that despite the commentary and forecast changes, the world had changed dramatically since the jumbo rate cut just three months ago. It obviously doesn’t take much to get this Fed to change its mind. I can guarantee she will do that again.”
“‘We had an inflation forecast for the end of the year and that kind of fell apart.’
“Not exactly the confidence-inspiring statement you would expect from a Fed chair. But Jerome Powell’s appearance at yesterday’s press conference was not his finest hour. In perhaps the most awkward performance of his term, Powell left the stage to the hawks, visibly tense as he tried to sell a strategy he did not appear to fully embrace.
“Powell pointed to a ‘sideways movement’ in inflation and ‘higher uncertainty’ about its development. These admissions show that the central bank is increasingly uncertain about its position, with interest rate markets now only expecting a rate cut in 2025 (as we do) and there is no real consensus on when the final cut would arrive.
“Markets have a really bad habit of overreacting to Fed policy moves. The Fed hasn’t done or said anything that deviates from market expectations – this seems more like “I’m going into the Christmas holidays so I’m going to sell” and start next year.
“The good news is that this 10-day selloff should pave the way for a Santa rally starting next week.”
“Santa came early and dropped a 25 basis point rate cut into the market’s inventories, but accompanied it with a note that there would be coal next year.
“The market is forward-looking and ignoring the good news of today’s rate cut and instead focusing on the small rate cuts next year.”
“What we heard last night accompanying the Fed’s interest rate cut is a real eye-catcher for the stock market.”
“The Fed is sending a clear signal that it has almost completed its period of rate cuts. 2025 will be a significant break in the Fed’s rate cutting cycle.”
“The Trump blessing could quickly turn into a curse. If the market expects yields to rise further, the Fed is unlikely to intervene against these forces. If inflation data continues to rise in January and February, then that could be the case for interest rate cuts.”
“As the Fed takes all the pressure for today’s sell-off, a reality check was arguably overdue given overbought conditions, deteriorating market breadth and rising interest rates.”
“Overall, today’s FOMC meeting raised some unwanted clouds of uncertainty about monetary policy next year. At the very least, market expectations have shifted towards a flatter and slower rate cutting cycle. Technically, short-term risk remains.” 10-year Treasury yields are rising, likely creating headwinds for stocks.”
“The Fed has poured cold water on the already fading market hopes for generous interest rate cuts in 2025.
“Given the risk of a renewed rise in inflation due to possible trade tariffs and a slowdown in immigration that has cooled labor market pressures, market expectations of just two more cuts in 2025 now look reasonable.”
“We expected this policy outcome, so it does not change our recently improved view on US equities. U.S. stocks can still benefit from AI and other mega forces, from robust economic growth and broad earnings growth – and we expect them to outperform their international peers in 2025.”
“With an economy running at full speed and a new president with a fiscally accommodative agenda, one wonders why the Fed felt a cut was necessary.”
“Is it about currying favor with the new government or is there a hurdle in the way? The Fed realizes the rest of us are missing.”
“The FOMC delivered the most hawkish rate cut possible yesterday, and market participants weren’t particularly pleased with what they heard.”
“However, it was a little disconcerting to see such a strong market reaction to Powell’s comments, especially considering that ‘every man and his dog’ had expected such a turn of events in the run-up to the meeting.”
“However, it feels like the markets have overreacted to Powell’s message and that we have reached something of a hawkish extreme here.”
“So I would be more of a stock buyer here, taking the path of least resistance higher when earnings are strong and economic growth is strong, offsetting the fading effect of the ‘Fed put.’
Correction: December 19, 2024 — An earlier version of this story incorrectly named an investment firm. It is BMO Private Wealth, not BMP Private Wealth.
Additionally, the name of Rabobank analyst Stephen Koopman was misstated. He is Stefan Koopman.
Read the original article Business Insider
