Inflation fears driving market sell-offs is the ‘new normal’: Strategist

US stock markets (^DJI, ^IXIC, ^GSPC) tumbled after the Federal Reserve announced a 25 basis point rate cut on Wednesday afternoon. Piper Sandler Companies Chief Investment Strategist Michael Kantrowitz analyzes the market’s reaction on Market Domination.

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Kantrowitz believes a rate hike is “unlikely” in 2025, though he expects market participants to continue debating the possibility. He explains that current rate cut expectations must be fully priced out of the market before potential hikes can be factored in, noting that this shift is already “on the way there,” as fewer rate cuts are anticipated for 2025.

Addressing today’s market downturn following Powell’s conference, Kantrowitz identifies higher interest rates as the primary concern for US equity markets. “The relationship between interest rates and equities has ebbed and flowed in recent months, but clearly we’re back to a pretty negative correlation,” he explains.

“People are not worried about the economy falling off a cliff, but they are worried about higher inflation,” Kantrowitz emphasizes. “In the last couple years, markets have only really gone down because of rising interest rate or inflation fears, and I think that’s the new normal. That going forward, market corrections are going to come from higher rates, not slower growth or higher unemployment.”

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This post was written by Angel Smith