The Fed might not be able to rescue the stock market even if it wanted to, says one analyst.
The Federal Reserve might not be able to rescue the stock market even if it wants to, thanks to mistakes it’s already made, according to an analyst who called last year’s fourth-quarter selloff.
Bannister contends the Fed’s final rate hike of its recent tightening cycle last December was a major overshoot and that the subsequent, cumulative half-point reduction in rates seen this year won’t be enough. In real life, a put option is an instrument that gives the holder the right but not the obligation to sell an underlying asset at a set price by a certain date—a valuable hedge if the value of the asset goes south. A metaphorical Fed put refers to the notion the central bank would take action aimed at shoring up asset prices in the event of a tumble.
“Our view is either to expect more flight to safety because a recession looms, or await more weakness that coerces policy makers to go further,” he said. In either case, that should be a positive for defensive sectors, like utilities, real-estate investment trusts and consumer staples, despite the recent turn toward cyclical stocks.
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