But while many market pros still encourage caution amid fewer rate cuts in 2025, many analysts across Wall Street see Wednesday's sell-off as a “buy the dip” opportunity, with the reaction intense to the Fed meeting unlikely to derail this year's “Santa Claus rally.”
Here's what investors and analysts are saying after Wednesday's brutal selloff.
Investors “overreacted” because they knew going into the meeting that the Fed was likely to signal a pause in rate cuts, Schleif said.
On top of that, the economy remains strong, which is the most important thing, he added.
“Markets seemed to ignore the number of times and ways that Chairman Powell pointed out how strong the economy is,” Schleif said. “The slower pace of Fed cuts is for good reason, which is that the economy is strong, and a strong economy is ultimately what matters most for stocks and earnings.”
Economists at Citi said the Fed's hawkish pivot would likely not last and instead turn dovish once the labor market shows signs of weakening.
With just 50 basis points of interest rate cuts priced into the market between now and mid-2026, Hollenhorst isn't buying it.
“The continued softening of the labor market is likely to become even more pronounced in the coming months, keeping the Fed cutting faster than markets are pricing in,” Hollenhorst said in a note on Wednesday. “We expect a sharp dovish pivot from Powell and the committee in the coming months.”
Ives said the Fed's interest rate path won't 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 bullish backdrop for risk assets,” Ives said in a note to clients.
Instead, Ives told his clients to remain laser-focused on the two biggest catalysts for technology going 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 part of Scrooge on Wednesday, falling as the Federal Reserve's hawkish tone dampened the holiday cheer.
“Investors should see this as a healthy place to take profits rather than the end of the party, after what has been a great run for markets since the US election.”
“This is a Fed that has no faith in its judgment at any time and is willing to be reactive rather than proactive even though its actions affect the economy with a long delay.
“You would have thought, between the commentary and the predicted changes, that the world has changed dramatically since the jumbo rate cut just three months ago. It clearly doesn't take much to cause' r This Fed to change his mind around. I can guarantee he will do that shift.”
“'We had a year-end inflation forecast, and it's kind of falling apart.'
“Not exactly the confidence-inspiring line you'd expect from the Fed chair. But Jerome Powell's performance at yesterday's press conference was not his finest hour. In what could have been the most uncomfortable display of for a while, Powell ceded the stage to the hawks, clearly under stress as he tried to sell a strategy he didn't seem to fully approve of.
“Powell points to inflation 'moving sideways' and 'higher uncertainty' about its path. These admissions reveal a central bank increasingly unsure of its footing, with rate markets now expecting only one cut for 2025 (as we do), and with no real consensus on when that final cut would arrive.”
“Markets have a very bad habit of overreacting to Fed policy moves. The Fed didn't do or say anything that deviated from what the market expected – this seems more likely, I' n leaving for the Christmas holidays, so I will sell and start next year.
“The good news is that this 10-day selloff should set the path for a Santa Claus Rally heading into next week.”
“Santa Claus came early and dropped a 25-bps rate cut stocking the market but with a note saying there would be coal next year.
“The market is forward thinking and has ignored the good news about today's cut and is instead focusing on the scarcity of rate cuts for next year.”
“What was heard last night from the Fed as an accompaniment to the cut in the interest rate is a signal to 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 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 is unlikely that the Fed will intervene against these forces. If inflation data continues to rise in January and February, then that could be for the interest rate cuts.”
“While the Fed is taking all the heat for today's selloff, it could be argued that a reality check of overbought conditions, declining market breadth, and rising rates is overdue.
“Overall, today's FOMC meeting brought clouds of unnecessary uncertainty about monetary policy back next year. At the very least, market expectations have shifted towards a shallower and slower rate cut cycle than expected. Technically, the near-term risk remains to the other side for 10-year Treasury yields, creating a likely headwind for stocks.”
“The Fed has poured cold water on the market's already dwindling hopes for generous rate cuts in 2025.
“Given the risk of resurgent inflation from possible trade tariffs and a slowdown in immigration which has been cooling pressure in the labor market, market expectations of just two more cuts in 2025 now seem reasonable.
“We expected this policy outcome, so it does not change our recently upgraded view on US equities. US stocks can continue to benefit from AI and other mega forces, from robust economic growth and from broad returns – and we see them outperforming international peers in 2025.”
“With an economy going gangbusters and a new president with a loose monetary agenda, you wonder why the Fed felt the need to cut.
“Does this favor the incoming administration or is there a blow in the way that the Fed can see that the rest of us are missing out.”
“The FOMC delivered as hawkish a cut as they could muster yesterday, and market participants were not particularly pleased with what they heard.
“However, it was a bit confusing to see such a violent reaction from the market to Powell's comments, especially considering how 'every man and his dog' had been expecting this kind of pivot in the period before the meeting.
“It feels, however, as if markets have overreacted to Powell's message, and we may have reached some hawkish tipping point here.
“As a result, I would be a dip buyer of equity here, as strong earnings and economic growth should see the path of least resistance continue to lead to the advantage, offsetting the fading effect of the 'Fed Put.'”
Correction: December 19, 2024 – An earlier version of this story incorrectly named an investment firm. It's BMO Private Wealth, not BMP Private Wealth.
It also misrepresented the name of a Rabobank analyst as Stephen Koopman. He is Stefan Koopman.
Read the original article on Business Insider
