U.S. stocks fell for the second consecutive day as markets reacted to the hawkish tone from the December Federal Open Market Committee (FOMC) meeting.
Kiwoom Securities analyst Kim Seung Hyuk noted that while the slower pace of interest rate cuts challenges stocks, the Fed’s revised economic projections provide optimism.
Specifically, the 0.1 percentage point increase in next year’s growth forecast and the 0.1 percentage point reduction in the unemployment rate outlook are positive signs for the market.
Despite these mixed signals, the market appears focused on downside risks. This negative sentiment stems from concerns over an overheated “Trump trade” and stretched valuations, which have weighed on investor confidence.
Kim highlighted Tesla’s steeper decline compared to Nvidia since the December 18 FOMC meeting as an example of this trend. He also pointed to Bitcoin’s price action, which briefly fell to $90,000 after peaking at $108,000, as evidence that some of the excesses from the Trump trade are being unwound.
Looking ahead, U.S. equities are expected to be caught in a tug-of-war between concerns over the overheated Trump trade and opportunities emerging in AI-related industries as the market processes the December FOMC decision.
While some investors may use macroeconomic uncertainties to justify their profits, growth in AI-driven sectors like robotics and quantum computing could support the market.
Kim predicts that this push-and-pull dynamic will converge between high-performing stocks and underperformers, resulting in a range-bound trading pattern for the broader market.
The much-anticipated Santa Claus rally may only materialize once concerns over elevated valuations begin to fade.
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