Bank of America strategists have cautioned that the anticipated year-end stock market rally, known as the "Santa Claus rally," could be jeopardized if the Federal Reserve adopts a dovish stance in its upcoming meeting. With the S&P 500 nearing record highs, investor optimism hinges on a favorable scenario of a Fed rate cut, declining inflation, and robust economic growth. However, strategist Michael Hartnett warns that dovish signals from the Fed could indicate a more significant economic slowdown, potentially triggering a sell-off in long-term U.S. Treasuries.
Currently, the S&P 500 is just 0.5% shy of its October peak, and historical trends suggest a seasonal rebound. Yet, the delayed release of key employment and inflation data due to a government shutdown presents additional risks. Hartnett also noted the possibility of U.S. government intervention to curb inflation and prevent unemployment from exceeding 5%.
Bank of America Warns Fed's Dovish Rate Cut Could End Santa Claus Rally
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