The Federal Reserve reduced its benchmark federal funds rate by 25 basis points, bringing it to a range of 4.25% to 4.5%. This marks the third consecutive rate cut this year.
It appears the Federal Reserve is taking a cautious approach. Today, the Fed indicated it expects two rate cuts next year, whereas the market had already adjusted expectations to three rather than the previously anticipated four. By signaling just two cuts, the Fed tempers expectations for immediate easing while leaving room to implement additional cuts should economic conditions deteriorate rapidly. This strategy provides flexibility without overcommitting, balancing current optimism with preparedness for potential challenges.
There is life after today. While the market close was certainly ugly, what will ultimately drive it forward is earnings. For 2025, S&P 500 earnings are projected to increase by approximately 17%. However, the real wild card is inflation. If inflation surges unexpectedly, it could throw a wrench in the market’s momentum. But, in my view, the likelihood of that happening is fairly low—unless the incoming administration makes drastic changes that impact the economic landscape.
I’m not too worried on that front, though, as the incoming President has positioned himself as a “stock market friend.” His policies are likely to benefit the market over the next four years, which should support continued growth.
But as for today, it was ugly. As the old saying goes, “If you shake the tree, the low-hanging fruit will fall.” And, based on today’s sell-off, it seems the tree’s been shaken. Those who are scared (the sellers) are the low-hanging fruit that are dropping fast.
So, let’s not get too caught up in the short-term noise. Earnings will drive the long-term narrative, and as history shows, markets are resilient—especially when there’s a solid earnings outlook ahead.
Key Points from the Federal Reserve’s Statement
- Economic Activity: Indicators suggest that economic activity has continued to expand at a solid pace.
- Labor Market: Labor market conditions have generally eased, with the unemployment rate moving up but remaining low.
- Inflation: Inflation has progressed toward the Committee’s 2% objective but remains somewhat elevated.
- Future Rate Cuts: The Fed anticipates a slower pace of rate reductions in 2025, projecting only two additional quarter-point cuts, down from the four previously expected.
Dissenting Vote
The decision was not unanimous. Cleveland Fed President Beth Hammack dissented, voting against the rate cut.
In summary, the Federal Reserve’s recent actions reflect a cautious approach to monetary policy, balancing the need to support economic growth while addressing persistent inflation concerns.
In summary (get ready)
And as for what you’ll hear on TV tomorrow? Most likely, they’ll say the sell-off was triggered by the Federal Reserve expecting only two rate cuts next year instead of four. Well, let’s be real—most of the market had already anticipated it would be down to three. So, DON’T LISTEN TO THE NOISE! What really moves the market is earnings, and the outlook for 2025 is solid.
Remember, corrections are inevitable. They’re like that one relative you hope doesn’t show up for Thanksgiving dinner—awkward, but eventually, they’ll leave and you can get back to enjoying the meal.
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