The US Federal Reserve recently made a significant announcement regarding interest rates. The central bank plans to make three different rate cuts in 2024, which has already affected stocks. Understandably, this stock market rally has left some stock fund managers nervous. The sudden change in the stock market outlook means that stocks could become quite volatile. Therefore, sudden economic shocks could have significant effects on the market.
Stocks have been performing well in the last few months. This latest Fed announcement only further boosted the ongoing trend in markets. In the short term, this appears to be good news. However, the performance of private markets remains unclear.
As inflation has fallen and American job markets have recovered, the Fed has felt more confident in loosening monetary policy. There was a realization that the high-interest rates were beginning to hurt the economic situation. Thus, the Fed began to lower rates, even though inflation had not yet reached its target.
Suddenly, in reaction to the Fed’s plans, the stock market outlook shifted dramatically. Bond yields dropped below 4%, whereas not long ago, they had reached 16-year highs. This change impacted not only the US but also other bond markets worldwide. Since then, stocks have been roaring upwards globally.
The magnitude of the rally could also mean that expectations are high. Investors, having waited years for the market to recover post-Covid, are now facing a lot of risky variables in stock market patterns, with geopolitical issues being the most obvious. Any sudden shifts in the market could quickly sour sentiment and burst the bubble.
Investors are already worried about this possibility and are quite apprehensive about the year ahead. The ongoing wars and upcoming elections in the US and UK will be critical to monitor. Investors will also keep a close eye on the Fed’s rate policy, as cutting rates too soon could signal a disregard for controlling inflation.
