There are two key reasons why the current rally on Wall Street could suffer after the Federal Reserve cuts rates, as expected, this week, warns the CEO of global financial advisory and asset management giant deVere Group.
Nigel Green’s warning comes ahead of the conclusion of the US Federal Open Market Committee meeting on Wednesday, at which it is widely expected that the Fed will cut US interest rates for the third consecutive time.
US stocks sit near all-time highs after a strong run. Many investors expect the rate cut to push markets higher.
But Nigel Green says the opposite could happen, for two clear and practical reasons.
“The market has already moved on the expectation of a cut, it’s well and truly priced-in,” he says. “When the decision comes, the buying slows.”
He continues: “The first reason the rally could suffer is profit-taking. US shares have delivered solid gains this year. As the year ends, many professional investors focus on keeping those gains, not chasing more.
“Once people are up for the year, they might take new money off the table.”
This matters because the rally has already used the rate cut as fuel. Investors who wanted to buy have mostly done so. When selling starts, there are fewer new buyers to take their place.
“When buying fades and selling starts, prices fall,” he says. “It is that simple.”
This effect is often stronger near the end of the year, when trading is lighter and moves can be sharper. “A small wave of selling can quickly turn into a broader pullback.”
The second reason the rally could suffer is what the rate cut says about the US economy, especially jobs.
“Interest rates are cut because the economy is slowing,” Nigel Green says. “Markets know that, even if they ignore it at first.”
While employment remains strong by past standards, recent figures show hiring is slowing and wage growth is cooling. Investors watch where things are heading, not where they have been.
“Company profits depend on people staying in work and spending,” he says. “If job growth weakens, profits come under pressure.”
When stocks trade near record highs, they need good news to stay there. A rate cut meant to support the economy can raise doubts rather than confidence if investors believe it is needed to protect jobs.
“The two reasons work together. Profit-taking becomes more likely when investors start questioning economic strength. The rate cut provides both a reason to lock in gains and a reason to pause.
“When people see an excuse to sell and a reason to worry, they often act,” he says.
He concludes: “Of course, this doesn’t mean markets are heading for a crash. Rate cuts help over time, and longer-term trends such as AI tech investment still support wider stocks.
“However, the expected Fed rate cut this week might not add the further fuel for stocks that many expect.”
