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After the interest rate cut, the market experienced a significant decline! How do we view the future market?

The Federal Reserve has cut interest rates again, but the market has plummeted. What's going on?

In the early hours of the 19th, the Federal Reserve announced a 25 basis point rate cut, lowering the federal funds rate target range to between 4.25% and 4.50%. This is the Fed's third rate cut of the year, totaling 100 basis points. This is in line with market expectations.

During this period, the market has been speculating that the pace of rate cuts next year may slow down. Finally, the dot plot released by the Federal Reserve shows that the median interest rate expectation for 2025 is between 3.75% and 4.00%, a decrease of 50 basis points compared to the current rate, which translates into 2 rate cuts at 25 basis points per cut. This is 2 fewer cuts than the dot plot in September, and one less cut than the 3 cuts widely expected by the market. The dot plot canclick herePlease check in the following path >>

Therefore, the market responded to this hawkish signal with a sharp decline. That evening, apart from the US dollar, various markets including stocks, gold, bitcoin, etc., all experienced a sharp drop, suffering indiscriminate selling, which may actually be an overreaction.

Based on this background, how can we make good investments? Below, Futubull Sir will elaborate from several aspects: first, understandThe logic behind this rate cut and the subsequent slowing of rate cuts,and thenFrom a more macro perspective, consider the investment logic of various assets in the next phase.Lastly, let's take a look.What other strategies can investors take?。

P.S. The Fed turned hawkish after cutting interest rates,click hereSeize the rewards and closely follow the changes in interest rates to deploy investments.

What is the logic behind the Fed's rate cut arrangement?

First of all, why cut interest rates?

Simply put, the Fed started cutting interest rates in 2024 mainly because inflation pressure eased, economic growth slowed down, and there was a need to stimulate economic activity through rate cuts to prevent potential recession risks. The underlying logic can be seen in the following chart:

In this situation so far, there have been no clear signs of a turnaround, whether there are signals we usually would.Focus on price and employment indicators.。

The CPI data for November in the United States announced this month showed a year-on-year growth of 2.7%, and core inflation increased by 3.3% year-on-year, in line with market expectations and previous values, reflecting that inflation pressure has not intensified, so there is room for further rate cuts. The November non-farm payroll report shows that although the employment figures are higher than expected, the overall unemployment rate is also higher than expected, so continuing to cut interest rates to support the job market is also reasonable.

In that case, why slow down the pace of interest rate cuts again?

Because the Federal ReserveThere needs to be a balance between inflation and employment.It is also necessary to strike a balance between acting too quickly and acting too slowly. If rate cuts are too rapid, the inflation rate may continue to remain above the 2% target; if rate cuts are too slow, the labor market may weaken significantly.

Currently, it is predicted that the rate cuts will slow down in 2025, mainly due to concerns about inflation.This can be seen from the statement of the Federal Reserve's rate decision on the 19th: the meeting's outlook for the economy next year is "overall economic performance is strong", with an increase in GDP growth expectations for this year and next year, and a delay in achieving the 2% inflation target to 2027.

The concern about inflation is closely related to the uncertainty of Trump's policies. Policies such as comprehensive tariffs and substantial tax cuts could potentially lead to inflation.

So why worry about inflation but still cut rates?

Because the process from formulating to implementing Trump's new policies, and to have a substantial impact on the economy, usually takes time and is not immediate. In addition, the Fed's latest forecast for the long-term federal funds rate has a median of 3%, and the current rate is still some distance away from this figure, providing room for rate cuts.

It's also worth keeping an eye on U.S. bond rates. Since the rate cut in September, this rate has shown a significant increase, which may reflect the market's excessive concerns about potential inflation from Trump's new policies. If this turns out to be excessive, the market may undergo a spontaneous downward adjustment in line with expectations of further rate cuts in the future.

How to view the stock market, US bonds, US dollar, gold, and Bitcoin next?

It's not just about whether to cut interest rates, but also about the overall economic situation, because ultimately policies are also in service of the economy.

If the global economy is in a phase of 'temporary lack of trending recovery' this year, thenit is very likely that the global economy will enter an upward cycle next year.Because the stimulative effects of policies like rate cuts will gradually become evident, and economies previously affected by rate hikes and deleveraging will gradually restore their endogenous vitality.

In this optimistic recovery expectation, how will various assets perform?

First of all, despite short-term pressure due to slowed rate cuts, in the medium to long term,Stocks, as risky assets, may perform better than Bonds, Gold, and the US Dollar, which are considered safe-haven assets.。

In theory,StocksThe relationship between stock markets and economic fundamentals has always been positively correlated. Of course, each market's stock market may differ: for example, the valuation of the US stocks is already at a high level, so some of the corporate earnings growth may need to be used to digest the valuation; while the Hong Kong stock market is at a low valuation, it may instead see a valuation correction.

And US Bonds? In the short term, they may decline, as mentioned earlier. However, in the medium to long term, with the expectations of economic growth and inflation rising, the yield of US Bonds may also increase. This would lead to a decrease in bond prices.As for the foreign exchange market? It might be a bit complicated. Trump may expect a weak short to medium term on one hand

hand, while on the other hand, there may be factors supporting the US dollar, such as the continuous positive Bulls in the market.US dollarOn one hand, policies such as tariffs are aimed at promoting exports, stimulating the economy, and reducing trade deficits, but on the other hand, these policies may increase global economic uncertainty. The US dollar, as a safe-haven asset, may receive a boost, resulting in more volatile trends in the US dollar.

Due to potential tariff policies and the inverted US-China interest rate differential,Renminbithere may be depreciation pressure, but considering the domestic policy space and economic strength, there is no need to be too pessimistic.

goldThe factors influencing prices are quite complex. There are Bearish factors, such as a slowdown in interest rate cuts (because gold has anti-inflation properties, so interest rate cuts are usually Bullish for gold, therefore, a slowdown in interest rate cuts would be Bearish). However, the core factors supporting the long-term rise of gold are more significant. For example, in situations of international political and economic uncertainty, gold serves as a safe-haven asset and there will be continuous demand at the base level, including from global central banks, Institutions, and individual investors.

BitcoinThis type of virtual currency asset is relatively difficult to define, it can be considered a risky asset or a hedge asset. In optimistic economic conditions, it may drive Bitcoin's rise. However, its trend will have a significant relationship with the expectations and execution of the Trump 2.0 policy, so there is also volatility risk.

However, the above is based on relatively optimistic expectations for the global economy.Still need to pay attention to some risk factors, such as the uncertainty of Trump's policies, the escalation of geopolitical conflicts, and the inability of the global economy to recover as expected (e.g. due to unexpected negative impacts such as public health events), all of which will cause significant disturbances to various types of assets, making them difficult to predict.

Finally: What should investors do?

Sir Hotung here wants to talk about asset allocation, reminding everyone,In addition to seizing opportunities in the stock market, you can also consider adding gold, Bitcoin, and US bonds to your asset portfolio, in order to balance risk assets and hedge assets.

Given the current environment, although stocks may outperform other assets in an optimistic economic outlook, there are a few points to consider:

In the presence of inflation and political-economic uncertainty risks, gold can serve as a hedge.

Bitcoin also serves as an inflation-resistant and hedging asset, with its monetary properties and potential for future applications that may bring greater growth potential.

While other assets are experiencing greater volatility, US bonds may remain relatively stable.

In terms of specific allocation:

for exampleIt may be worth considering a combination of value and growth stocks in the US stock market,balancing valuation digestion and growth potential.In the Hong Kong stock market, the focus is mainly on undervalued high-quality companies.。

Gold allocation can account for a certain proportion, and if risk tolerance is not too strong, a small amount of Bitcoin allocation is ideal.。

As for US bonds, long-term bonds may face downward pressure and volatility risks, which can be considered.Consider some short-term government bond assets appropriately.。

Finally, it is also important to remind everyone of two points: one is to maintain both at the same time.Long-term investment perspective, sensitivity to opportunities and risks in the short term.; Secondly, no matter what kind of assets you invest in, you can use these tools to lay out opportunities.ETFs and optionsThis type of tool can be used to position opportunities.click here, can directly access the USA Stocks ETF section>>

Focus on @Futubull educationorclick hereJoin the class to get more investment dry goods, greatly improve investment skills! If you want to exchange more, you can also join the mooer.Official Investment Exchange GroupLearning, Chief Analyst real-time online guidance!

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