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Climate change, deadly wars and the proliferation of potentially job-destroying artificial intelligence are some of the biggest topics coming up at this year’s World Economic Forum (WEF) in Davos, Switzerland is.
But they are not necessarily hottest — That could be set aside for what the Federal Reserve does or doesn’t do on interest rates in 2024. Why, you ask?
Shares in many of the big companies participating in Davos are trading at or near record levels, in part due to expectations for several interest rate cuts this year. Lower interest rates naturally lead to lower financing costs and the potential for higher returns on investment.
“There are four people on our team. [rate] There will be rate cuts next year and four rate cuts in 2025,” Bank of America (BAC) CEO Brian Moynihan said on Yahoo Finance Live at WEF on Tuesday. Told. ”
At its last policy meeting in late December 2023, the Fed kept its key interest rate unchanged for the third consecutive time at 5.25% to 5.50%. Committee members noted at least three rate cuts this year in quarter-point increments.
Typically, investors interpret the Fed’s comments as follows: more That’s more likely to justify rising stock prices than three rate cuts.
Ann Walsh, chief investment officer at Guggenheim Investment Management, told Yahoo Finance Live that six rate cuts are possible this year. This is because slowing economic growth could further pressure inflation and lead to a mild recession.
“We’re a little bit more concerned about the economy slowing down even more than we think it’s going to have a soft landing,” Walsh said.
But since the last Fed meeting, U.S. economic data and Fed commentary have not supported the view of aggressive rate cuts or bullish bets on stocks.
The consumer price index (CPI) rose 3.4% in December compared to the same month last year, faster than the 3.1% rise in the previous month.
Various Fed members, including Christopher Waller, have dampened discussions of rate cuts.
JPMorgan (JPM) CEO Jamie Dimon also warned in his latest earnings report that inflation could be stronger than market participants expected.
Ultimately, what will happen to interest rates remains largely unknown. To be sure, the answer to that question will not be answered at Davos.
Experts on the ground told Yahoo Finance that further market caution may be warranted in the short term until there is more clarity on interest rates.
Guggenheim’s Mr. Walsh thinks allocating more cash to bonds makes sense at this point.
“Bonds have historically done very well when the Fed paused and started the easing cycle, which is exactly where we are. Fixed income is going to perform well.’ It performs very well in that environment,” Walsh said.
Brian Sozzi I’m the executive editor of Yahoo Finance. Follow Sozzi on Twitter/X @BrianSozzi And even more linkedin. Have a tip about a deal, merger, activist situation, or more? Email brian.sozzi@yahoofinance.com.
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