U.S. Fed's hawkish rate cut a signal stock market investors should watch closely

financialpost.com:

As we enter 2025, we think there was a recent development over the past two weeks that investors really should start paying attention to, especially those aiming for a repeat of last year’s market results.

The U.S. Federal Open Market Committee meeting (a branch of the Federal Reserve System that determines the direction of monetary policy) on Dec. 18 was a real doozy. The 25 basis point rate cut came in as expected but there was some disagreement among members as to whether to hold rates steady. As a result, the Fed’s dot-plot (the central bank’s projection for its key short-term interest rate) is now projecting another 50 basis points of rate cuts next year, taking rates to 3.9 per cent, which is down by half of the previously expected 100 basis points in cuts.

This sudden hawkish positioning sent shockwaves mostly through very expensive U.S. equity markets that have been depending on more liquidity coming out of the U.S. Federal Reserve to justify current sky-high valuations. More so, we saw this in those certain pockets of excessive speculation, like cryptocurrencies, that appear to be simply levered-beta strategies, meaning the volatility of their returns are high compared with the broader market. Interestingly, it was also impactful to those companies that have benefited from Donald Trump winning the U.S. presidential election, such as MicroStrategy Inc. and Telsa Inc.

For the majority of us professional investors, who typically don’t participate in these areas of the market, we are more concerned about the price investors have been willing to pay for the U.S. mega cap stocks that have been leading the charge and dominating indices.

For example, take one of the largest U.S. companies by market cap, Apple Inc.,