According to the famous Wall Street bull, Tom Lee, the head of research at Fundstrat, the stock market may see a rebound lasting for several weeks after the major interest rate decision by the Federal Reserve on Wednesday.
Lee pointed out that the Fed's policy meeting, to be held on Tuesday and Wednesday, will discuss the next interest rate adjustment. The market generally expects the Fed to cut rates by 25 or 50 basis points, marking the first rate cut in four years.
He said, "There are currently some positive factors at play. We know that the Fed will cut interest rates. Given that inflation data supports rate cuts, and the labor market also needs some support, I believe this will bring confidence to the market. I think we will see good market performance during and after the meeting in the next one or two weeks."
For months, Wall Street has been expecting a rate cut, especially as the financial environment tightens and the economy shows some signs of weakness. Despite still strong economic growth, the labor market is steadily slowing down. According to the U.S. Bureau of Labor Statistics, the number of new employees in July this year decreased by 3.7% compared to the same period last year.
According to the CME FedWatch tool, the market believes there is a 61% probability that the Fed will cut rates by 50 basis points on Wednesday. However, Lee believes that as long as central bank officials assure the market of more rate cuts, stocks should rise regardless of whether the rate cut is by 25 or 50 basis points.
Lee stated, "A 25 or 50 basis point rate cut could have a hawkish or dovish impact." He explained that if the Fed makes a substantial rate cut, it could trigger concerns about an economic recession. "I think the key is whether Chairman Powell can convey the message that this is the beginning of a cycle, and they are confident that we are moving towards a return to neutral interest rates. Whatever decision they make, it is essentially dovish."
Nevertheless, the outlook for an economic recession remains uncertain. Economists at the New York Fed predict a 62% probability of the U.S. economy entering a recession by August next year, slightly higher than last month.
He added, "If FOMC discussions drag on, the market may worry about the risk of an economic hard landing. However, I believe the ultimate result will be positive."
Lee also predicts that the market performance will be strong in 2025. After the presidential election, volatility will stabilize, providing another opportunity for a strong performance in the stock market. Especially against the backdrop of a rate cut by the Federal Reserve, the economic policies of both presidential candidates appear constructive. "In the next 12 months, I believe investors should be confident," said Lee. "Although there may be some volatility now, the outlook looks quite good."
Editor/Lambor