Should Investors be Baking in a Rate Cut from the Fed?

Although the market was a little shaky after the Fed spoke on Wednesday, the S&P500 ended the week flat-to-up thanks to Friday, May 3rd’s rebound.

According to the CME website, the odds of a rate cut (or the Fed lowering interest rates) are actually around 47% by Dec 2019 and move to above 50% by January 2020. Before the Fed meeting, the market was actually banking on the Fed lowering interest rates. Data showed a 65% chance of a rate cut in December from last week, April 26th.

It wasn’t until the Fed spoke on Wednesday did this begin to subside.

Doesn’t the odds of a rate cut feel strange? The S&P is again past all-time highs, unemployment has reached 3.6% (a 50 year low), and the headline GDP number was above 3% again.

When I think about “Where will stocks go from here”, it seems to me that if the market is baking in a a large chance that there will be a cut to rates, they may be disappointed this year. If rates actually trend up on a stronger economy, we all say the tantrum the market threw last year.

See my post on the market at these levels here

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