The market is currently pricing a ~ 50%-50% probability of 25bp or 50bp rate cut. (Rate Monitor)

The market has been front running the cuts since November 2023 purchasing growth stock at record pace.

While the rational behind can be correct, the main problem I see is the deterioration of the economy that occurred in 2024 that had almost no real impact yet.

The FED has the power to restrict the economy to slow inflation but the stimulation effect is way less direct nor certain.

Indeed, while they can make sure borrowing cost is higher and even unaffordable, they don't control the will to borrow.

It means that while inflation was the major problem we had in 2022 and 2023, an economic slowdown is now the main possible event and I believe the market has not priced anything of that, like if a rate cut would boost the economy with certainty.

The narative of bad news is good news will start to become again bad news is bad news and with the current leverage level, we can easily anticipate some market volatility, not like 2022 where we were pricing the hikes but the kind of volatility that occurs when unexpected events arise.

I've had a bearish view since the end of 2023 and while the direction went against my view, I keep a prudent stance into the end of 2024.

Crossd Investment