Federal Reserve interest rate cuts have been like 'crack' and 'heroin for the markets': strategists

Brian Sozzi

The dealer may be done for the moment. And that could upset users in due course.

Investors widely expect the Federal Reserve to stand pat on interest rates when it announces its decision later Wednesday. It would be a highly telegraphed maneuver by the Jerome Powell led Fed. Powell has consistently said in recent months that rates are in a “good place” after three cuts this year—the latest one being in October.

Moreover, Powell has stressed the Fed will remain data dependent—and with U.S. macroeconomic data on the mend lately despite the pressures from the ongoing U.S.-China trade tussle, there doesn’t appear to be any major need for another rate cut.

Sorry, President Trump.

The Fed’s renewed easy money policy has unleashed a rally throughout many parts of Wall Street. Going into the Fed’s latest rate decision, the Dow Jones Industrial Average and S&P 500 have surged 26% and 23%, respectively, year-to-date. The Nasdaq Composite has clocked in with a 16% gain. Low rates have spurred investors to take on added risk in a bid to juice returns.

Federal Reserve Board Chair Jerome Powell testifies to the House Budget Committee, Thursday, Nov. 14, 2019, on Capitol Hill in Washington. (AP Photo/Jacquelyn Martin)

Borrow low, sell stocks high. No?

But with additional rate cuts seemingly off the table for the near-term, investors have to start wondering if they are poised to lose a powerful stimulus to equities in 2020.

“The last few years we have seen maybe the view that Fed rate cuts would be almost like heroin for the markets, they just needed another fix,” Raymond James Chief Economist Scott Brown said on Yahoo Finance’s The First Trade. Brown thinks the market has grown comfortable with the Fed’s actions this year and forward communications, however. He isn’t banking on more rate cuts in the near-term.

When asked about Brown’s assessment on the market being hooked on rate cuts, Invesco Chief Markets Strategist Kristina Hooper didn’t pull any punches.

“I actually take exception to that, I would say more like crack. Markets have come to expect it, and quite frankly it is the key factor driving stocks right now in an upward direction. It’s a real support for risk assets in general,” Hooper said.

Let’s see how the market reacts to the Fed keeping its dime bag in its pocket heading into 2020.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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