The Fed’s attitude towards interest rates at this week’s meeting will determine the trend of U.S. stocks before the end of the year | Anue Juheng-U.S. Stock Radar

The market generally expects the Fed to cut interest rates in 2024, but if the Fed still maintains a “hawkish” stance at its meeting on Wednesday (13th), investors’ market expectations will change, and US stocks may fall by the end of the year.

Alex McGrath, chief investment officer at NorthEnd Private Wealth, believes there are no upcoming reports that will cause the Fed to change its stance on monetary policy. He said expectations for a rate cut next year have supported recent gains in stocks and bonds.

Since July 2022, the federal funds rate has remained in a range of 5.25% to 5.5%, a 22-year high. After experiencing a decline in 2022, U.S. stocks will achieve a strong recovery in 2023, especially with a sharp rise in November.

according toDow JonesMarket data, as of last Friday (8th),Dow JonesThe industrial average is just 1.5% below its highest closing price about 2 years ago. at the same time,S&P 500 IndexReaching its highest closing price since March 2022.NasdaqThe index hit a new closing high since April 4 last year. At the same time, the 10-year U.S. Treasury yield fell sharply from a 16-year high of 5%, and bond prices rose.

However, the market is divided on the direction of Fed policy. Melissa Brown, senior director of applied research at Axioma, said officials and investors have not yet fully reached a consensus on when the Fed will begin to ease monetary policy. Additionally, traders’ forecasts for rate cuts have been changing over the past few months, according to data from the federal funds futures market.

And it is almost certain that the Fed will not cut interest rates at its final meeting of the year this week. The CME FedWatch tool shows a 98.4% chance of keeping interest rates at 5.25%-5.5% at this meeting.

Ed Clissold, chief U.S. strategist at Ned Davis Research, expressed doubts about market forecasts for a rate cut early next year. He said the Fed’s shift from tightening monetary policy requires a gradual process. It may gradually shift from a hawkish stance to neutrality before considering a rate cut.

Mike Sanders, head of fixed income at Madison Investments, was similarly cautious. He believes that the expectation of an interest rate cut in March next year is too radical, and it is more likely that interest rates will be cut in the second half of next year. Taking into account the continued strength of the labor market, inflation in the service industry is relatively stubborn.

The most recent jobs report showed that 199,000 jobs were added in November, beating expectations of 190,000, with wages rising and the unemployment rate falling to 3.7%, the lowest in four months. Sanders said the data showed there were no signs of economic weakness yet that would require the Fed to take action to reduce inflation. He believes the Fed may continue to be hawkish. This attitude may be reflected in the upcoming “dot plot” interest rate forecast.

In addition, although the Fed suspended raising interest rates in September, it promised to “maintain long-term high interest rates.” Sanders also stressed that inflation may be accelerating again, making the Fed more worried and therefore unlikely to ease policy prematurely.

Even so, the market is bullish for stocks. Seasonal factors may have a positive impact on stock market trends in December. According to historical data, whether it is a bull market or a bear market,Dow JonesThe Industrial Average rose 70% of the time in December.

Clissold said the overall market outlook remains positive. If the U.S. economy can achieve a “soft landing,” it will help the current bull market continue.