There’s gas in the tank for a post-Fed rally so stick with the stock-market winners, says Wall Street bull
Fed day is finally here, and hopefully, the answer to burning questions about rate-cutting plans from the world’s most important central bank.
As we wait to see how the Fed’s words play out on Wall Street, our call of the day,is from the head of research at Fundstrat Global Advisors, Tom Lee, who says there will be a post-decision rally, offering five reasons for that.
One of Wall Street’s biggest and most enduring bulls, Lee correctly called the 2023 equity rally and sees the S&P 500 ending 2024 at 5,200, which he has said may be too conservative.
Lee acknowledges pre-Fed investor caution, which he attributes to January’s red-hot inflation data and easing financial conditions. He also finds investors seemingly in disbelief that stocks continue to rise despite January’s hot CPI data, recession worries, extreme valuations, still dominant Big Tech and hype around AI.
So in order for stocks to rally, some kind of surprise or relief element would be needed, which he expects. In the first of his five reasons, Lee talks about how stocks have been easing just a bit into the Fed meeting, which puts the odds in favor of equity gains.
“When you look at the last two years worth of rate decisions, when stocks are soft into the FOMC, they rally four out of seven times. It’s not a high probability…but it just shows you that there are things that can improve the odds, but at least the base case is that it’s probable that we rally after the FOMC,” Lee tells clients in an update.
The second reason surrounds softening interest rates, which can work in equities’ favor. Fundstrat’s head of technical strategy Mark Newton sees the 10-year Treasury yield at a peak:
