Powell’s Battle-Ready Fed Gives the Trump Trade a Stress Test
Published On Dec 20, 2024, 4:32 PM
The Federal Reserve, led by Jerome Powell, has recently adopted a hawkish stance regarding interest rates, which could impact the markets significantly. While previously there was optimism about the economic policies introduced by the incoming President Trump, Powell's shift towards maintaining higher interest rates has unsettled investors. As a result, this has caused volatility across markets, particularly affecting riskier assets and leading to a surge in bond yields. Many investors are recalibrating their strategies, considering Powell's indications that inflation remains a critical concern. The S&P 500 faced its worst performance on a Fed decision day in over two decades, and sectors such as small caps and value stocks have struggled. Overall, there is growing uncertainty about the extent to which new economic policies will foster growth versus the persistent risk of inflation that could undermine market optimism.
Stock Forecasts
SPY
Negative
Investors may need to brace for continued volatility in the stock market as the Fed's stringent approach to inflation and interest rates persists. This may lead to a correction in stock valuations, especially in sectors that had previously received significant attention due to Trump's policies.
BND
Positive
With increasing interest rates, investors may shift their preferences towards safer assets such as bonds, which could benefit relevant investment-grade bond ETFs. This shift could see rising demand for bond funds even as stocks face headwinds.
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