Stock Market correction after FED Interrest rate discussion

The US stock markets fell sharply following the Federal Reserve's interest rate decision on December 18, 2024. The US Dow Jones blue-chip index closed 2.6 percent lower at 42,326 points.

Although the US Federal Reserve lowered the key monetary policy rate by a quarter of a point - to a range of 4.25 to 4.50 per cent - as we expected, it signaled a slower easing of its monetary policy for 2025.

After the third rate cut this year, Fed Chairman Jerome Powell said at the press conference that the Fed was now at or close to the point of slowing its rate cuts. Literally: “From here on, it's a new phase. We will be cautious about further cuts. Monetary policy is still restrictive, but much closer to a neutral level”. The US central bankers are now assuming that they will only make two interest rate cuts by the end of 2025 instead of four, each by a quarter of a percentage point. This is half a percentage point less than was generally expected in September.

Even if the duties on imports from Canada, Mexico and China announced by Donald Trump will push inflation up slightly - the Fed is forecasting an average inflation rate of 2.5% for the coming year - and interest rates will be lowered to a lesser extent than expected as a result, we believe that the positive impact of the Trump administration outweighs the negative, with the prospect of tax cuts, various regulations and a series of announced fiscal policy measures to boost the US economy.

Based on this, we recommend holding on to existing positions and taking advantage of weak days to add to them.

We continue to favor US equities

Even after the Fed meeting in mid-December, we remain positive on US equities. The contrast with sluggish economic growth in Europe remains striking.

We are maintaining our overweight in the technology sector and are focusing on structural growth trends such as digitalization, artificial intelligence and cloud computing.

Business models that benefit from structural trends such as energy efficiency and infrastructure in addition to economic recovery also remain attractive to us.

We also favor sectors with higher debt capital requirements, as these should benefit from further interest rate cuts. These include cyclical companies in particular, which are valued more attractively than defensive stocks.