U.S. stock markets (^DJI, ^IXIC, ^GSPC) plunged after the Federal Reserve announced a 25 basis point interest rate cut on Wednesday afternoon. Michael Kantrowitz, Chief Investment Strategist at Piper Sandler Companies, analyzes the market’s reaction to market domination.

Kantrowitz believes a rate hike in 2025 is “unlikely,” but expects market participants to continue discussing the possibility. He explains that current rate cut expectations need to be fully priced out by the market before potential rate hikes can be factored in, noting that this shift is already “well underway” with fewer rate cuts expected in 2025.

Kantrowitz addresses today’s market downturn following Powell’s conference and identifies higher interest rates as a key concern for US stock markets. “The relationship between interest rates and stocks has weakened in recent months, but we are clearly back to a fairly negative correlation,” he explains.

“People are not afraid of an economic crash, but rather of higher inflation,” emphasizes Kantrowitz. “In the last few years the markets have only really fallen because of rising interest rates or inflation fears, and I think that’s the new normal. Going forward, market corrections will come from higher interest rates, not slower growth or higher unemployment.”

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This post was written by Angel Smith