Wall Street's 'foolish' 2024 trade is betting on early Fed rate cuts

economictimes.indiatimes.com:

investors unleashing dovish monetary wagers across the board: Two-thirds of Bloomberg Markets Live Pulse respondents said that betting on early monetary easing is the «most foolish» among popular trades heading into 2024.

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Even as the S&P 500 closed Friday at an all-time high, money managers and analysts are contending with data that signals US economic resilience and Federal Reserve officials who'vepushed back against reducing interest rates too soon.

The results are an indication of rising anxiety on Wall Street that the bulls — who've been emboldened by speculation surrounding a dovish Fed pivot -are going too far. Already, traders who ended 2023 with an optimistic forecast of six rate cuts for this year have pared down that wager to five. They're also less certain that policymakers will kick off their monetary easing cycle in March, as was nearly priced in during the frenetic rally of late 2023.

To Janet Mui, head of market analysis at RBC Brewin Dolphin, the acceleration of inflation in some major economies and resilience in US employment data result in an important challenge for the market's interest-rate expectations.«The early start and number of rate hikes priced in was incompatible with the soft-landing view,» she said.

San Francisco Fed President Mary Dalyon Friday, meanwhile, said it's «premature» to think rate reductions are around the corner, noting she needs to see more evidence that inflation is on a consistent trajectory back to 2% before easing policy.

More than two-thirds of the MLIV Pulse survey respondents said big gains for global stocks at the end of last year now look like a bad omen -and evidence that market participants became