The Stock Market Bet Wrong on Fed Rate Cuts

for 2024 and 2025. The Fed anticipates rates to be at 5.1% by the end of 2024, signaling just 50 basis points of rate cuts next year.

Those same Fed Funds Rates are trading at 4.8% and are likely to continue rising towards the Fed’s target of 5.1% over time, which is more than a 200 bps difference.earnings yield declined, causing the two measures to converge. The equity market had been betting on many rate cuts in 2024 and a corresponding decline in real yields.

It indicated that rate cuts were not on the horizon anytime soon. If there were to be any rate cuts, they would merely be adjustments for lower inflation, while real rates would remain restrictive.On May 11, the spread between the Nasdaq’s earnings yield and the 10-year Real yield was 2.7%; now, that spread has narrowed to just 1.7%, a difference of 100 basis points.

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