© Reuters. The Fed will not cut interest rates significantly!Prototype of the movie “The Big Short”: Wall Street is too optimistic about U.S. stocks
Financial Associated Press, January 3 (Editor Bian Chun)With the rise of the AI industry and the stronger-than-expected U.S. economic momentum, U.S. stocks staged an astonishing rebound in 2023. Regarding the trend of U.S. stocks in 2024, Wall Street is generally bullish. The most optimistic analysts predict that the S&P 500 Index is expected to rise to 5,200 points this year, 10% higher than the current level.
But big short Steve Eisman has questioned the extent of Wall Street’s bullishness.From the super investment enthusiasm surrounding the “Big Seven” in the United States to the eager anticipation that the Federal Reserve will cut interest rates multiple times this year, Eisman believes that investors are not prepared for unexpected events.
“In the long term, I’m still very bullish, but in the near term, I’m worried that everyone is feeling too good going into the new year.” Eisman said on a show a few days ago.
Eisman, the model for the movie “The Big Short,” was a senior portfolio manager at Neuberger Berman who was best known for shorting subprime mortgages in the run-up to the global financial crisis.
On the first trading day of 2024, U.S. stocks suffered a “bad start”, with the Nasdaq falling 1.6%, the largest single-day decline since October 2023. Throughout 2023, U.S. stocks performed strongly: the Nasdaq soared 43%, the S&P 500 soared 24%, and the Dow Jones index rose nearly 14%.
“The market has climbed over the wall of worry over the past year. Now a year later, everyone, including me, is pretty optimistic about the economy,” Eisman said. “It’s just that everyone is starting the new year so optimistically, and if there’s any disappointment, you think about it, what’s going to support the market?”
The Fed will not cut interest rates significantly
Eisman pointed out,The Fed’s lower-than-expected interest rate cut in 2024 may serve as a short-term negative catalyst. The Fed is expected to cut interest rates three times this year at its December meeting, while federal funds futures prices are implying more cuts. Eisman believes these expectations are too aggressive.
“The Fed is still afraid of repeating the mistakes of former Chairman Volcker in the early 1980s, when he stopped raising interest rates and caused inflation to spiral out of control again,” Eisman said. “If I were the Fed, I would take a lesson from Volcker and say to myself, ‘Why am I in such a hurry?'”
Eisman expects the Fed to cut interest rates only once this year. “Absent a recession, I don’t see any reason why the Fed would need to cut interest rates significantly.“He said.
There are opportunities in these sectors
Eisman, best known for accurately predicting the housing crash of 2007-2008, now appears to be taking an interest in homebuilding stocks. As recently as October last year, he said he was avoiding such stocks. The SPDR S&P Home Builders ETF is up 57% over the past 52 weeks.
“The current housing inventory is reasonable in the sense that homebuilders have good balance sheets. They are able to offer lower interest rates to customers so that customers can afford to buy new homes. There is a shortage of new homes right now,” Eisman said.
However, Eisman skipped homebuilding stocks in his “Top Recommendations for 2024.” He is most optimistic about the technology and infrastructure sectors.
2024-01-03 08:29:00
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