Before we dive into today’s Market 360, I want to first thank those who joined me and my fellow InvestorPlace colleagues Eric Fry and Luke Lango for our special Early Warning Summit 2024 Tuesday night.
It was a great success, with over 3,000 tuning in to hear about our predictions for next year. For those who were unable to make this summit, a replay of the event is available here for your viewing. Not only did we cover what we expect in 2024, but we also shared three FREE recommendations.
Click here to watch a replay of our special Early Warning Summit 2024 event now.
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Christmas came early for investors yesterday – in the form of good news from the Federal Reserve.
After concluding its December Federal Open Market Committee (FOMC) meeting, the Fed announced that rates will remain unchanged at 5.25% – 5.50%.
The Fed’s decision to stand pat was widely expected. In fact, Wall Streeters believed there was a 98.4% chance that the Fed would stand pat in December, according to the CME FedWatch Tool. As I’ve written about before, a handful of influential Fed Governors have made telling statements about their belief that the economy is slowing down and inflation is tapping the brakes.
Case in point: Christopher Waller, a well-known hawk on the Federal Reserve’s Board of Governors, recently stated, “I am increasingly confident that policy is currently well positioned to slow the economy and get inflation back to 2%.” He even noted that if inflation continues to cool off for the next several months, then the Fed could cut key interest rates. This is important because Waller is very influential.
However, the key element investors were waiting to hear came from the committee’s policy statement and Fed Chair Jerome Powell’s press conference.
So, in today’s Market 360, let’s take a closer look at the FOMC statement and Powell’s press conference comments. I’ll share where I expect key interest rates to head next, as well as how to learn more about predictions I have for next year.
Let’s jump in.
The December FOMC Statement
The statement acknowledged that “inflation has eased over the past year” and that “the growth of economic activity has slowed.” It went on to stress that the decision to leave rates unchanged reflects the committee’s belief in the need to remain patient as policy measures take hold.
And in Powell’s press conference, two comments stood out:
“Inflation has eased from its highs, and this has come without a significant increase in unemployment. That’s very good news.”
“We are likely at or near the peak rate for this cycle.”
Translated from Fedspeak: The war against inflation is (almost) over. Barring any big surprise in economic data, the central bank does not plan to raise key interest rates further.
Interest Rate Cuts Are Coming
However, the so-called “dot plot” survey is what really excited investors. It showed that committee members expect to slash rates three times next year, four times in 2025, and three more times in 2026. Assuming 250 basis points (a quarter-point), that would bring the federal funds rate to its stated target of 2%-2.5%.
Wall Street analysts think the Fed may be low in its projections. They forecast anywhere between four and six rate cuts next year (1%-1.5%).
Personally, I think the Fed may be too conservative in its projections and will cut rates six times next year. The reality is the federal funds rate is well above market rates. The 10-year Treasury yield is at about 3.93%, and as you can see in the chart below, this is down significantly from its 5% peak in late October.
That’s a full percentage point decline in interest rates – a colossal move in the bond world. And the Fed never fights market rates. This is partly why I predict key interest rates to drop to 3% by the end of 2024.
Looking Ahead to 2024
The bottom line is that the painful period of high rates for borrowers and investors is coming to an end.
That’s great news for investors.
This is why the Dow soared more than 400 points on Wednesday to reach an all-time record of 37,000.
Even better: Things are looking up for investors as we head into Christmas. I think we’ll see a nice little “January effect,” and then we’ll know by spring whether we’ll see significant rate cuts to keep the rally going.
If you’re wondering more about what to expect in 2024, I recently sat down with Luke Lango and Eric Fry on Tuesday for a special Early Warning Summit 2024 to discuss our predictions. During this event we covered:
- Our investing game plan for next year – including a strategy that could outperform the markets by 9X or more.
- Where you should – and where you shouldn’t – invest your money in the coming year.
- And three stocks we think could soar in 2024, regardless of what happens in the market.
If you couldn’t attend our Early Warning Summit 2024 last Tuesday, you can catch a replay of the event here.
It’s not every day I get to share the floor with extraordinary stock pickers like Luke and Eric. So, if you want to learn how to survive and thrive financially in 2024, you should tune in to see what we have to say.
Watch a replay of the Early Warning Summit 2024 here.
Sincerely,
Louis Navellier
