This is The Takeaway from today’s Morning Brief, which you can sign up to receive in your inbox every morning along with:
On big down days for the stock market or prolonged stretches of sell-offs, it’s good to have a trusted playbook.
Think of it as a guide to keeping your sanity amidst the chaos and, hopefully, your portfolio flush with long-term gains.
For me, the sell-off playbook is a twofold exercise honed over years of reporting on business news.
First, chat up the smartest people I know in markets and business. What are they doing and saying, and why? Do they sound or look fearful?
And two, think deeply on whether something truly has changed in the market or if investors are in a tizzy over splashy headlines.
Suffice it to say, I had to dust off this sell-off playbook this week. The end assessment: Relax, folks, this isn’t the start of a bear market even though the tape feels punishing.
Why, you ask?
A lot of the smartest people in the room, so to speak, have valid reasons to stay long on stocks AND the economy isn’t falling off a cliff AND we are likely to still get rate cuts in 2025 AND we have a pro-business president in Trump taking office in less than a month.
“Big picture, with record earnings, record profit margins, strong productivity, and overall improving consumer and small business sentiment, it is hard to think that this bull market is over,” Carson Group chief market strategist Ryan Detrick told me.
Says Truist co-chief investment officer Keith Lerner, “The bull market is still intact, but we are seeing a short-term gut check.”
A gut check, indeed.
The Dow Jones Industrial Average promptly finished Wednesday’s session down more than 1,100 points. It rallied slightly on Thursday, but the selling pressure renewed on Friday.
The index of 30 well-known stocks such as Salesforce (CRM) and Disney (DIS) is off by almost 4% in December as losing stretches have begun to pile on one another amid renewed uncertainty on rate cuts.
What has spooked the markets is the Fed not committing to aggressive rate cutting in 2025.
The consensus among Fed officials is now for two rate cuts next year, down from four previously forecast in September, as the monetary policy body remains concerned about the inflationary outlook. The outlook for inflation is further clouded by potential moves by the incoming Trump administration, such as possibly inflationary tariffs on China.
“I don’t see many [economic] red flags. People are cautiously optimistic if they own businesses, whether they’re small, medium, or large,” San Francisco Fed president Mary Daly said on Yahoo Finance’s Opening Bid podcast.
But again, nothing I heard from Daly suggested she is concerned about the demand outlook in the US despite inflation being stickier than she and other voting Fed members would like.
“The Fed was hawkish but I think people are jumping the gun on assuming rate cuts are over — that’s not what Powell said (plus he just gave markets 100 bps of easing in 2024),” Sevens Report Research founder Tom Essaye told me.
“I do think 2025 could start a bit bumpy as Washington may be a bit dysfunctional (as we’re seeing now) and the Fed isn’t as dovish anymore, but I don’t think either are fatal to the bull market unless we see growth start to roll over.”
Then on the topic of demand, all signs point to an economy continuing to do quite well and supportive of strong earnings growth in 2025.
The AI thesis remains intact and will likely be a key driver of profits and valuation multiples in 2025.
“There are strong indicators that this could be a tough year — and, potentially, decade — for the stock market. I’m going to be bold and say we will see the opposite. I have no doubt that AI will drive the stock market in both the short and long term. Countries that lead in AI will see the fastest GDP growth, as well as a significant improvement in standard of living and defense capabilities. And, whoever leads with AI as a company will lead in their industry, regardless of their sector,” former Cisco (CSCO) CEO John Chambers flagged this week as one of his 2025 predictions.
So, while things feel as if they have changed in the market this week, drill down and it looks similar to what has powered the gains in 2024. Nothing lasts forever, and stocks don’t go up in a straight line — two phrases to live by in life and in investing.
Three times each week, I drive insight-filled conversations and chats with the biggest names in business and markets on Opening Bid. You can find more episodes on our video hub or watch on your preferred streaming service.
Brian Sozzi is Yahoo Finance’s Executive Editor. Follow Sozzi on X @BrianSozzi and on LinkedIn. Tips on deals, mergers, activist situations, or anything else? Email brian.sozzi@yahoofinance.com.
