markets

1/2/25

How many Fed cuts are coming in 2025?

Pullbacks in the stock market have been rare, brief, and not too deep in the back half of 2024. But all 3% drops from the highs for the S&P 500 have come when markets either expect the Fed to cut a lot (early August and early September) or barely at all (late December). Should hot inflation prints in Q1 (which have been common in the past few years) push this number above 4.13% (i.e., doubting whether any easing will be delivered), that could prove a headache for stocks. Same story if any unwelcome cooling in the jobs market sends this yield sharply lower.

The sweet spot for market expectations on where the federal funds rate will sit at the start of 2026 is probably somewhere between 3.25% and 4%, a level that would imply inflation isn’t enough of a problem to prevent further easing, but any deceleration in growth or labor-market softness isn’t severe enough to warrant rapid, significant cuts.

In any event, where this metric trades is going to be a good lens into the market’s near-term outlook for NGDP growth (that is, real growth plus inflation). That’s critical for sales growth, which, with profit margins being as high as they are, offers very efficient fuel for earnings growth.

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US stocks dip as rate cut fails to ignite broad enthusiasm

The S&P 500 fell 0.1%, the Nasdaq 100 gave back 0.2%, and the Russell 2000 outperformed with a 0.2% advance, though it was up more than 2% at its highs of the day.

Brown bear (Ursus arctos) looks out of its den in the woods under a large rock in winter

markets

7h

Walmart hits all-time high following Bank of America boosting its price target

Walmart shares touched an intraday all-time record of $106.11 before settling lower for the close, missing its previous record closing price of $105.05 on February 13 of this year.

The rally came after Bank of America lifted its price target on Walmart to $125 from $120 and stuck with its “buy” rating. Analysts said Walmart is emerging as a leader in “agentic AI commerce,” pointing to its GenAI assistant, Sparky, which offers occasion-based recommendations and help shoppers plan, compare, and buy products.

Analysts also flagged Walmart’s sheer scale, backed by data from 180 million customers, and its fast-growing delivery business as major competitive advantages. Beyond AI, the fundamentals are catching eyes, too. Walmart’s food delivery arm is already profitable, reaching 95% of US households within three hours and a quarter of customers in under 30 minutes.

The note also highlighted Walmart’s cushion against tariffs, since two-thirds of its products are sourced domestically, and pointed to its new Synchrony Financial-backed credit card as another way to juice membership growth.

The stock is up over 16% year to date and has more than doubled since 2020.

markets

10h

Federal Reserve cuts rates by 0.25%, signals 50 basis points of additional easing by year-end

The Federal Reserve cut interest rates for the first time this year, lowering its policy rate to a range of 4.25% to 4.5%, as anticipated.

The “dot plot” from the Summary of Economic Projections shows the median Fed official thinks it will be appropriate for the policy rate to end this year at 3.625% (expected 3.875%) and 3.375% in 2026 (expected 3.375%) if the economy evolves in line with their expectations.

Stocks slid during Fed Chair Jay Powell’s press conference, where he described the reduction as a “risk-management cut,” didn’t rule out that the US economy might still warrant restrictive monetary policy, and signaled there was not wide support for a larger 50-basis point cut at this meeting.

The iShares Russell 2000 ETF, which was up nearly 2.5% at the highs, fell into negative territory before rebounding. The SPDR S&P 500 ETF traded down as much as 0.9% before paring those losses to end up right around where it was when the rate cut was announced.

The US central bank raised its forecast for how high core PCE inflation will be next year to 2.6% from 2.4% in June, which heavily implies that monetary policymakers are willing to look through the near-term inflationary impulse from tariffs and that softening job growth has assumed more prominence in their decision-making process.

There was only one dissent: newly added Fed Governor Stephen Miran, who favored a 50-basis point cut at this meeting and appears to be the outlier Fed official who thinks the policy rate should end the year at 2.875%.

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