Stock Market Rallies After Federal Reserve Hints At Lower Interest Rates

Last week’s stock market rally could continue through early 2024 after the Federal Reserve announced that interest rates may begin to cool.

Tennessee Tech Economics and Finance Professor Justin Lee said investors are growing optimistic and more willing to buy. He said that after sky-high interest rates have pressured them to be conservative, reports of lower rates have drawn investors back to the market.

“Although the price has gone up pretty high, the rate at which the inflation is going has clearly slowed down, and I guess that’s the number that these people have been expecting to see,” Lee said.

Lee said the caveat with the rally is that the stabilization of rates and inflation are only suggestions from the Federal Reserve. Investors could become vulnerable if rates do not start falling as they expect.

“Every time they have meetings to decide what the rates will be, things will start changing around,” Lee said. “There’s still a good amount of uncertainty, but the fact that the Federal Reserve has dropped this type of news is a good resolution to the uncertainty, and investors hate uncertainty.”

Lee said despite the concerns of the Federal Reserve, inflation has not caused a sizable decrease in spending. He said that in November, consumer spending actually rose by about .3%. Lee said the public’s persistence to buy, combined with eased rates and inflation will bring a breeze not only to buyers, but the economy as a whole.

“Having a better expectation of what’s going to happen with the economy, people view these stocks of companies or bonds and other financial products to be more valuable in your future,” Lee said.

Lee said we do not see rallies like this one without widespread confidence. He said investors are gambling on lower rates by the million.

“You basically see higher price levels for the financial assets that are available in the market,” Lee said. “It’s basically a very simple manifestation of the supply and demand rule.”

Lee said with interest rates having hovered around 5%, investors who remember a time when rates never exceeded 1% will continue to be more active as the market takes shape in 2024.