Last Wednesday, Powell decided to cut the rates with 25 basis points. This was widely expected. Though, the markets did pull down heavily during the event. The reason? A very hawkish tone where Powell discussed that even the current rate cut was not just a formality. And looking forward, inflation expectations were heavily raised for 2025. And fewer rate cuts than before are now being expected. Money stays more expensive for longer, so the stock market sold off as many were hoping for lower rates more quickly in 2025.
2024 bull market will be challenged
The above market reaction has to be seen in relation to the heavy rally we have had in 2024. Looking at the market dynamics of the last week and the volatility that seems to be somewhat back, we do expect an interesting January. A fresh start where the bull market will experience a healthy challenge. We don’t bet on downticks, but we see more uncertainty in the bullish trend then we have seen the last 6-12 months. There are some issues to be tackled for the world now Trump is getting into the White House. We do expect some quick actions from Trump in Q1 2025 that will cause elevated volatility compared to when Biden was in power. Elevated volatility will bring more opportunity for stock picking and option trading!
In the end the US markets might be better off with Trump, but the path to more strength will be jumpy.
Inflation more stubborn than market anticipated
We should also not forget that it is likely that Trump’s America first policy will lead to price increases on the medium and the long term. At least, if he is real with high tariffs. In the end, tariffs have no winners. As we see that inflation is already hard to tackle now, we do expect that this will only get more difficult. Geopolitical tensions are another point of concern in trying to bring inflation down.
Correction would be healthy
Next to topics like geopolitical tensions and tariff uncertainty, the bull market might just need a healthy correction of 5-10%. Again, do not bet on that as that often goes wrong! Just be aware of it that some good opportunities might arise! More money gets lost on trying to time the crash versus in the crash itself. So do not try to time the markets, try to understand the scenarios and buy on the discount instead of selling on the ‘high’.
Be prepared!
Most likely a choppy few weeks/months ahead where we will possibly see some tax loss selling pressures unwinding. Oversold stocks in December might be oversold partly due to the tax loss selling in the US. Where investors sell some of their losses of the year to avoid having to pay a hefty tax bill. Usually, these stocks have ample room to rebound at the start of the year. January is often an interesting month to pick some great small or mid cap stocks for the first half of the year. We will focus on that in January!
