Here’s why BTIG says they would be “patient buyers” after large Fed rate cut

Investing.com — Analysts at BTIG report that the significant interest rate cut by the Federal Reserve was anticipated for some assets, but not across the entire market.

On Wednesday, the Fed reduced interest rates by 50 basis points, bringing the target range to 4.75% to 5.0%. They indicated that additional cuts are likely to be announced this year, marking the start of an easing cycle aimed at stabilizing the economy after a lengthy struggle with rising inflation. Rates had previously been held at their highest levels in over two decades for more than a year.

In conjunction with this first reduction since March 2020, an updated “dot plot” of policy forecasts revealed that officials now anticipate the benchmark fed funds rate to decrease to between 4.25% and 4.5% by the end of 2024. This could point to either another substantial half-point cut or two smaller quarter-point reductions at the Fed’s remaining meetings this year.

In a note to clients on Friday, the analysts remarked that leading up to the Fed’s highly awaited decision, much of the expected rate cut had already been factored into market prices.

However, they noted that while this was true for bonds, the dollar, and more defensive equities, it was not the case for other segments of the market, particularly in technology and consumer discretionary sectors.

The growing interest in riskier assets contributed to a significant rise in the benchmark, which reached an all-time high on Thursday.

Before the announcement, the BTIG strategists had warned of a potential “false breakout,” suggesting there could be a “sell the news” response from investors. However, the analysts acknowledged that this fear did not materialize.

They stated, “Do we think some consolidation is still warranted? Yes. Is the weakness likely to be more moderate than we initially thought? Yes. Therefore, we would be patient buyers while respecting the breakout until proven otherwise.”

Regarding specific sectors, BTIG strategists expressed caution about consumer staples, indicated a plan to reduce some exposure to energy, and noted that software stocks are reaching new highs after a period of consolidation lasting seven months.