1 week ago
Ed Yardeni, President of Yardeni Research, and Matt Orton, Chief Market Strategist at Raymond James Investment, expect a pullback in US equities, with Yardeni projecting a 10-15% correction and Orton suggesting even an 8% decline would offer attractive buying opportunities.
The outlook follows significant market turbulence overnight, with US equities plunging, Treasury yields rising, and the dollar index surging after the Federal Reserve signalled a slower pace of rate reductions.
The Fed's latest Summary of Economic Projections (SEP) includes a revised median projection of just two rate cuts in 2025 versus four expected in September. Fed Chair Jerome Powell, in his post-policy press conference, stressed that the central bank will tread cautiously on rate cuts due to persistent inflationary pressures.
Also Read: Two big reasons why the Fed turned hawkish
The core personal consumption expenditures (PCE) inflation forecast was revised upwards to 2.8% for 2024 and 2.5% for 2025, compared to prior estimates of 2.6% and 2.2%.
The Dow Jones dropped 1,100 points (2.6%) following the Fed chief's comments, marking its worst day since August and its longest losing streak since 1974 at 10 consecutive sessions. The S&P 500 fell 3%, slipping below 6,000, while the Nasdaq declined 3.6%, closing under 20,000.
Also Read: Dow Jones sinks, S&P 500 posts worst Fed day since 2001
Yardeni believes the market correction is a reflection of the Fed's changing tone. "The economy remains resilient, and the Fed may have overstimulated it earlier with aggressive rate cuts. But this is a healthy development. I did not want to see a melt up occurring here," he said.
He pointed out that profit-taking, alongside uncertainties about tariffs, potential tax cuts, and spending plans, which could influence inflation and complicate the Fed’s ability to act decisively, could contribute to the correction extending into early 2025.
While short-term caution is warranted, market fundamentals—such as strong earnings growth and broadening economic activity—remain intact, according to Orton.
The Fed's cautious stance comes after implementing 100 basis points of rate cuts this year, a move Powell justified as balancing maximum employment with price stability. However, Powell reiterated the importance of monitoring inflation closely before making further adjustments.
Also Read: Oil fall as dollar surges on Fed outlook for fewer rate cuts
Yardeni believes the US market correction and a stronger dollar could create headwinds for emerging markets like India, albeit within the context of a still-intact bull market.
Orton highlighted India’s relative resilience driven by strong domestic demand and corporate fundamentals. While foreign institutional investor (FII) flows may face short-term pressure from the elevated dollar index, he believes this should not overshadow India’s secular growth drivers.
Also, as global investors look to diversify their portfolios amid rising US policy uncertainty, India could emerge as a favoured destination.
Robert Sockin from Citi, however, has a different view. He believes US market still has room for an upmove. "We have a very positive growth backdrop in the US, earnings growth has continued to be very strong throughout the cycle, and our equity strategist base case is that you'll get a significant leg up still from here somewhere into the mid-6,000 range. So, broadly speaking, the backdrop from equities is positive," he said.
