Under the downward revision of the Federal Reserve's forecast for the number of interest rate cuts next year, the US stock market continues to adjust. On the early morning of December 20th Beijing time, the S&P 500 index fell 0.09%, the Nasdaq fell 0.1%, and although the Dow Jones Industrial Average ended its "ten consecutive declines", it only rose slightly by 0.04%.
Guotai Junan analyzed that although the Fed's December interest rate cut of 25BP was in line with expectations, the downward revision to two hawkish rate cuts in 2025 has led to a "double kill" of short-term US stocks and bonds.
Although the Fed's interest rate cut has an immediate impact on the US stock market, its effect on A-shares may not be significant.
Zheshang Securities pointed out that China's interest rate cut in 2025 is still a high probability event, although it may be influenced to some extent by the pace of the Federal Reserve's interest rate cut under the factor of the China US interest rate differential. But in 2025, the Chinese financial cycle is expected to show an improvement trend, with a relatively moderate magnitude, which is still conducive to the performance of the stock market.
In terms of gold allocation, due to the hawkish stance of the Federal Reserve, which has formed a strong bearish factor on gold prices, multiple institutions suggest that investors adopt a bearish or wait-and-see strategy in gold.
The volatility of the US stock market has increased, while the impact of A-shares is not significant
Overall, the hawkish attitude of the Federal Reserve has impacted the performance of risk assets. As of the close on December 20th Beijing time, the S&P 500 index fell 0.09% to 5867.08 points; The Nasdaq fell 0.1% to 19372.77 points; The Dow Jones Industrial Average closed at 42342.24 points, with only a slight increase of 0.04%.
Meanwhile, all three major European stock indices closed down across the board. Data shows that the German DAX index fell 1.35% to 19969.86 points; The French CAC40 index fell 1.22% to 7294.37 points; The FTSE 100 index in the UK fell 1.14% to 8105.32 points.
CITIC Securities pointed out that in the short term, with unclear guidance from the Federal Reserve, the optimistic "holiday trading" sentiment in the US stock market may come to an end, and market volatility is expected to increase.
At present, the total market value of the US stock market has reached $64 trillion, more than twice the size of the US economy. At the beginning of this month, the Schiller cycle adjusted price to earnings ratio of the S&P 500 index reached 38.86 times (surpassing the peak of 38.58 times in November 2021). Coupled with the Federal Reserve's interest rate cut in 2025 and fiscal subtraction, the downside risk of the US stock market has increased, "further pointed out by China Merchants Securities.
However, multiple securities firms have reminded investors that although the hawkish stance of the Federal Reserve has impacted the US stock market in the short term, it is expected that there will still be support for the US stock market in the medium term.
Galaxy Securities stated that due to the hawkish attitude of the Federal Reserve stemming more from uncertainty rather than a significant rebound in inflation data, there may be some overdraft in the high levels of US bond yields and the US dollar index. Therefore, although in the short term, due to the tension over re inflation and the significant reduction in interest rate cuts by the Federal Reserve, it is not ruled out that the US stock market may continue to decline while US bond yields and the US dollar continue to rebound, the sustainability of this upward trend may not be strong.
In the environment of 'economic soft landing+slight re inflation+further interest rate cuts', it is expected that the US stock market will still have support in the future, "Guotai Junan Securities pointed out." Looking back at the three rounds of precautionary interest rate cuts since the 1990s, the US stock market has support. Therefore, the short-term impact on the US stock market and US bond market is unlikely to be trend oriented, and will continue to adjust towards the medium and long-term trend in the future
In terms of the A-share market, Zheshang Securities stated that the 2024 Central Economic Work Conference held in December emphasized the implementation of a moderately loose monetary policy, timely reserve requirement ratio and interest rate cuts, and maintaining sufficient liquidity. Combined with the weak performance of economic data such as investment and consumption in November, it shows that the economic recovery has slowed down. At the same time, considering the current high level of real interest rates in China, a rate cut in 2025 is still a probable event.
Overall, the Chinese financial cycle is expected to show an improvement trend in 2025, with a relatively moderate magnitude, which is still favorable for the performance of the stock market. However, in terms of market style, it is expected that the predicted growth style friendliness in 2025 will slightly decrease compared to before the interest rate decision, and the rebound will slow down. The elasticity of the upward growth style may be constrained to some extent, "said Zhejiang Securities.
Gold may face short-term or pressure
Affected by hawkish news from the Federal Reserve, international gold prices have sharply declined.
Among them, in terms of international spot gold, data shows that on December 20th, the price of spot gold (London gold spot, the same below) was reported at $2593.069 per ounce, falling below $2600 per ounce. On the night of the Federal Reserve's interest rate announcement, London gold was now reported at $2584.574 per ounce, a sharp drop of 2.31%.
In terms of futures gold prices, data shows that as of press time, COMEX gold futures were reported at $2608.7 per ounce.
CITIC Futures pointed out that the significant rebound in the Federal Reserve's inflation expectations for 2025 and the hawkish tendency of the dot matrix are the main reasons for the volatility in the gold market. Looking ahead to the future, there is a tendency towards negative impacts from the FOMC meeting, which will be concentrated and released in the short term. There is a high probability of weak fluctuations in precious metals.
In terms of allocation, multiple institutions suggest investors to be short in the short term.
For example, Minmetals Futures stated that the Federal Reserve is implementing a "hawkish interest rate cut", and the current CME interest rate observer shows that the market expects only one 25 basis point rate cut in 2025, which will occur at the May interest rate meeting. In terms of precious metal strategy, it is recommended to sell short at high prices.
The Federal Reserve has cut interest rates by 25 basis points as scheduled, but the dot plot shows that Federal Reserve officials have significantly raised the median of their future policy rate target range, and their inflation expectations for next year and the year after have also significantly increased. The decision statement means that the Federal Reserve is at or near slowing down the pace of interest rate cuts, or suspending the pace of interest rate cuts. Gold prices may be somewhat suppressed in the short term, and operational recommendations are volatile and bearish, "said Guosen Futures.
However, Guojin Securities believes that the current adjustment of gold is also an opportunity for allocation, and a larger increase can wait for overseas risks to heat up again. Gold will continue to benefit from the "two-way" drive of the decline in real interest rates and the weakening of the US dollar.