As the markets on Thursday began with more bloodletting after the Dow Jones Industrial Average’s 1,000-point surge on Wednesday before rallying to a gain, strategists were already prognosticating that the central bank would slow its rate-hiking policy at the turn of the new year.
A data-fueled Fed has been keen to keep monetary policy on autopilot with respect to raising rates, but that may soon change in 2019.
“I think we’re going to slow below 2 percent over the next four quarters into 2019 and that might just be enough to … put a pause button on the Fed and bond vigilantes, and I think allow one more run in this bull market,” said Jim Paulsen, chief investment strategist at Leuthold Group.
The Fed raised interest rates for a fourth and final time last week, citing strong economic indicators such as a robust labor force, but also cited that moderating growth globally was a concern.
source: tradingeconomics.com
In the meantime, the major indexes were awash in volatility–the new normal for the markets–on Thursday as the Dow plunged over 600 points after its largest single-day gain in history on Wednesday. To Paulsen, this signaled a green light for investors to dial up the aggression.
“I don’t know where the bottom is here and it’s going to be volatile for a little while now, but I think it’s time to lean back towards [a]more aggressive stance in your equity portfolio,” Paulsen said. “I don’t know if we’ll set new highs than we’ve already seen, but I think we’re going to have a pretty good 2019.”
Paulsen’s view is in line with Art Cashin of UBS and Guggenheim’s Scott Minerd, who both said the central bank “is done raising rates and maybe will even cut rates” as opposed to their forecasts of two more rate hikes.
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