Investors are reconsidering predictions for when the Federal Reserve will reduce interest rates. However, Wall Street strategists think this won’t halt the upward trend of stocks in 2024.
Unexpected growth in consumer prices last month triggered a reduction in the speculated number of interest rate cuts for 2024. Speculation peaked at seven cuts in early January, but after the report, it fell to only two.
Despite the market’s reaction to the recent inflation figures, the likelihood of the Fed affecting the rally in the stock market seems unlikely, as the S&P is already up by about 8%.
Wells Fargo strategist Christopher Harvey hints that despite the speculation, a multiyear easing cycle by the Fed is still expected. However, rising interest rates seem to not be slowing corporate earnings or US economic growth, boosting market sentiments.
Additionally, strategists believe that the timing and size of Fed cuts this year will be less important than the reason behind the cuts. Ohsung Kwon from Bank of America emphasized the focus on earnings growth rather than rate cuts, which could help the S&P 500 meet their 5,400 end-year target even without a rate cut.
The improved economic outlook is also leading to speculation of fewer Fed cuts, a situation often referred to as a “no landing scenario”, featuring accelerated economic growth alongside a slowing path for inflation. Large-cap companies are currently preferred in this scenario, while small-cap stocks are displaying more rate sensitivity.
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Despite these uncertainties, many strategists retain an optimistic outlook, regardless of a narrowing expectation for federal rate reductions.
