FOMC could be last hurdle for S&P 500's Santa rally: BofA

Investing.com -- The key event of this week will be the upcoming Federal Open Market Committee (FOMC) meeting, where policymakers are widely expected to announce a 25 basis point (bp) rate cut.

According to Bank of America, more attention will focus on the updated economic projections for insights into the medium-term policy outlook. Of particular interest is whether the 2025 dot will indicate three rate cuts, as the bank expects, compared to four cuts in September.

BofA also anticipates the 2026 dot to show two cuts, with the long-term rate revised upward to 3.125% from 2.9%.

"This week’s FOMC may be the last hurdle before a Santa rally," strategists led by Gonzalo Asis said in a note.

Historically, the second half of December ranks as one of the strongest periods of the year for US equities, with the S&P 500 posting gains in 83% of presidential election years.

With the December rate cut priced in, the debate around the dot plot centers on the 2025 median. In September, the median projection indicated 100 basis points of rate cuts in 2025. However, strategists believe the December dots will likely reflect a more moderate outlook, citing resilient economic activity and persistent inflation.

They expect the 2025 median to show three rate cuts, two in 2026, and no changes in 2027, effectively raising the policy rate trajectory from 2025 onward by 25 basis points compared to September’s projections.

In addition to the Fed meeting, November retail sales data, due Tuesday, will be closely scrutinized.

BofA expects the report to highlight robust consumer spending, noting little evidence of a broad slowdown. It remains optimistic about the consumer outlook, supported by strong real income and wealth growth.

Source: Investing.com