Stocks plummeted following the Federal Reserve's unexpected rate outlook Wednesday, but Tom Lee, head of research at Fundstrat Global Advisors, believes investors shouldn't panic. Equities took a nosedive after the U.S. central bank's revised 2025 outlook signaled a more hawkish stance with two fewer rate cuts than previously anticipated. Lee remains optimistic, stating, 'This panicked reaction will be short lived. This was a painful day, but the fundamentals did not change.
This is why we see this as a 'back up the truck' moment.' He cites several reasons for his confidence: the CBOE Volatility Index surged 74% on Wednesday, its second-largest jump ever, historically followed by full stock market recoveries within a month. Additionally, the S&P 500 is testing its 50-day moving average, a level where it previously rallied in 2024. Lee also notes that despite the Fed's hawkish commentary, investors perceive the central bank as still dovish, albeit with less clarity for the new year. 'In other words, the Fed remains supportive of markets,' Lee wrote. 'We see this more as the Fed wanting to 'take it slower.'' Lee believes small- and mid-cap stocks are best positioned to benefit from this downturn, pointing to companies like BancFirst, Spotify, Carvana, and Shake Shack as particularly attractive investments
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