狮山巡礼
投资杂谈
Investors dont need to worry about the Federal Reserves coming interest-rate decisions. The central bank has their back.
Right now, the market has been extremely Fed-focused, moving through one of the periodic phases in which stocks moves are more closely linked to expectations for the banks rate decisions. Over the past month, all three major U.S. indexes have gained a few percent, while expectations for rate cuts, first in December and then in January, have risen.
That correlation between stocks and expectations for a lower fed-funds rate doesnt always hold. But Novembers labor-market data, while complicated, confirmsgenerally weakening job growth, which is core to the case for lowering rates.
That, plus the fact that the Fed cut rates earlier this month, gives the market the green light to keep rising. As long as the stock market believes the fed-funds rate is headed south, it will assume mild economic growth. That points to gains for stocks.
Stocks moving in response to hopes for lower rates is a common pattern, but today, investors are especially focused on lower rates. The higher rates are, the greater the risks of the vast investments companies are making, both in Big Tech and mergers and acquisitions.
According to FactSet, analysts expect companies to invest more than $500 billion next year in the data centers that power artificial-intelligence software. Some companies, such asOracle
andMeta Platforms, are borrowing money to finance the spending. Lower rates help with that.
MA, meanwhile has beenrisingthis year.Netflixs
agreement to pay more than $72 billion forWarner Bros. Discoverys studio and streaming assets likely means it will have toborrow tens of billions. That is less expensive when rates are lower.Falling rates give investors more confidence in the economy, and maybe even in Big Tech.
But the market doesnt need to be so concerned.
First off, the Fed will likely lower rates even if inflation remains a problem. Since September 2024, the bank has cut rates by 1.75 percentage points, via six separate moves, even though inflation is above its targeted 2%.
If inflation takes off again, that could be because of stronger-than-expected consumer and business demand, which would mean more growth in sales and corporate earnings. Those would be positive for stocks.
An even bigger win for the market is the Feds plan to buy $40 billion of short-term Treasury securities a month, unveiled Dec. 10. According to the St. Louis Fed, total U.S. bank reserves have fallen to $2.9 trillion from $3.24 trillion last December, a decline that leaves less cash held in the financial system.
Money flows into banks when they sell Treasury debt to the Fed, so the central banks buying will help to keep cash plentiful. It will also tend to keep prices of Treasury bills elevated, meaning yields will be lower.
The takeaway is that while expectations about the fed-funds rate may fluctuate, Treasury yields will be kept in check. That keeps short-term borrowing costs lower for both people and businesses.
More important than the cut was the Feds decision to restart asset purchases, writesMorgan Stanleys
chief U.S. equity strategist Mike Wilson. This is unequivocally bullish and supportive for our 2026 outlook for equities.Even Trivariate Researchs Adam Parker, who wrote in a Sunday research note that he is concerned about how much the Fed can support the market, believes the Fed could still boost stocks. If investors (and we) start believing the Fed will expand their balance sheet, that would change our view that the Fed-related pillar of the bull case is starting to wobble a bit, he said.
The point is that the Fed, once again, has the markets back, regardless of the number of rate cuts to come. Liquidity in the financial system will grow and rates will remain low enough to support economic growth. This will not only support growth in sales and earnings for SP 500 and Nasdaq companies, it will make the potential returns in equities look attractive versus the yields investors can receive in fixed income.
The market can worry less about the Fed. The bank seems highly supportive of the market.
