Experts’ Views on Fed Action: Potential 10-15% Correction in US Equities
Ed Yardeni, the President of Yardeni Research, and Matt Orton, the Chief Market Strategist at Raymond James Investment, are anticipating a possible pullback in US equities. Yardeni predicts a correction of 10-15%, while Orton suggests that even an 8% decline could present attractive buying opportunities.
This outlook comes after a night of significant market volatility, with US equities taking a dive, Treasury yields rising, and the dollar index spiking following the Federal Reserve’s indication of a slower pace of rate reductions. The Fed’s latest Economic Projections now suggest just two rate cuts in 2025, revised down from the initial estimation of four in September. Fed Chair Jerome Powell emphasized caution in light of persistent inflationary pressures.
The Dow Jones experienced a drop of 1,100 points, marking its worst day since August and the longest losing streak since 1974 at 10 consecutive sessions. The S&P 500 slipped 3%, falling below 6,000, while the Nasdaq declined 3.6%, closing under 20,000.
Yardeni links the market correction to the changing tone of the Fed. He views the correction as a healthy development given the prior aggressive rate cuts. Profit-taking, coupled with uncertainties around tariffs, tax cuts, and spending plans, might prolong the correction into early 2025.
Despite short-term caution, Orton remains optimistic about market fundamentals, emphasizing strong earnings growth and expanding economic activity. The Fed’s more cautious approach stems from the 100 basis points of rate cuts implemented this year to balance employment and price stability.
Yardeni warns that a US market correction and a stronger dollar could pose challenges for emerging markets, including India. However, Orton sees India as resilient, fueled by robust domestic demand and corporate fundamentals. Despite potential short-term pressure on foreign institutional investor flows due to a strong dollar index, India’s growth drivers remain intact, making it an appealing diversification opportunity for global investors.
On the contrary, Robert Sockin from Citi is bullish on the US market, projecting further upside potential. He cites positive growth metrics, continued strong earnings growth, and a base case scenario for a significant increase in equity value.
In conclusion, the market landscape remains dynamic, influenced by global economic factors and policy decisions. Investors are advised to navigate these fluctuations with caution while staying informed about emerging opportunities and risks.
