Markets Get Real – Next Moves for When the Froth Clears
Chart: VIX 1-year daily
The markets had a nasty little selloff yesterday, bringing us all back to reality. I don’t believe anyone saw this coming. But with that said, should anyone be surprised? Probably not. The market needs to work off the froth and, in all probability, there is still a bit more unwinding to be had. Markets do not stop on a dime and turn one way or the other, so we think a few more days of this is likely. The VIX spiked, which is a good sign that we are probably close to the selling activity halting.
The HCM-BuyLine® is positive and all pullbacks should be considered buyable, even the ones where you feel uncomfortable.
As widely expected, the FOMC reduced the fed funds target range by 25bps to 4.25% – 4.50%. It was the third consecutive reduction, totaling 100 bps. Although Powell indicated the Fed would proceed cautiously as it approaches neutral, a hawkish cut of two additional rate cuts in 2025 seems easy to do. Whether they do more will depend on policy actions and the economic data. As for when they might pause, January seems likely. Our baseline is for three cuts in 2025 on a quarterly cadence on slightly weaker labor markets. There would be a reasonable case for another cut in January should the December employment report prove to be weaker than expected.
The median participant sees 50 bps of rate cuts in 2025, with a longer run rate of 3.0%. Policy remains restrictive. The SEP showed higher inflation expectations with greater uncertainty.
Two stocks to watch after yesterday are Salesforce (CRM) and O’Reilly Auto parts (ORLY).
Chart: CRM 1-year daily
Chart: ORLY 1-year daily
