The bulls are back and investors are chasing the market higher.
Last week, there was talk about a potential 50 basis point interest rate cut by the Fed, with some experts warning that such a bold move could spell trouble for the economy and trigger a market selloff. However, fast forward to this week, and Wall Street seems to be embracing the idea of a larger rate cut as stocks soared to record highs.
Traders are also betting that the Fed will continue its aggressive easing strategy. Although the central bank hinted at another 50 basis points of cuts in its next two meetings in 2024, traders are pricing in an additional 75 basis points, according to the CME Group’s FedWatch tool.
Experts now believe that it’s cooling inflation, rather than an imminent recession, that will pave the way for another substantial rate cut. In fact, prices fell to a three-year low in August, signaling a need for further rate adjustments.
Nationwide Mutual’s chief economist, Kathy Bostjancic, pointed out that if inflation continues to ease, interest rates should be lowered accordingly. She suggested that a 50 basis point cut in the next meeting would be appropriate, emphasizing that it’s not a sign of economic collapse but an acknowledgment of overly restrictive policies.
The upcoming interest rate decision on Nov. 7 and the December meeting will provide the Fed with opportunities to implement further cuts. This week’s market performance indicates that an aggressive cut could be a positive catalyst. Powell’s reassurance that the Fed’s actions are aimed at staying ahead rather than catching up has boosted investor confidence and led to new record highs for major indices like the S&P 500 and the Dow Jones Industrial Average.
With the Fed in easing mode, analysts like John Hancock’s Emily Roland are optimistic about a soft landing scenario, which is fueling positive sentiment across markets. Increased optimism has prompted BMO Capital Markets chief investment strategist, Brian Belski, to raise his year-end S&P 500 price target, anticipating a strong performance in the fourth quarter.
Looking ahead, two key jobs reports will play a crucial role in guiding the Fed’s decisions on the size of its next rate cut. Analysts warn that any further softening in the labor market could prompt the Fed to implement a 50 basis point cut sooner rather than later.
In conclusion, with the market on an upward trajectory and the Fed poised for more rate cuts, investors should stay informed and be prepared for potential market shifts. Stay tuned for more updates on the latest financial news and market developments on Extreme Investor Network.
By Seana Smith