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

Investing.com — The jumbo Federal Reserve interest rate cut was priced into some assets, but not for the rest of the market, according to analysts at BTIG.

The Fed slashed interest rates by 50 basis points to a range of 4.75% to 5.0% on Wednesday and indicated that it would announce further cuts this year, signaling the beginning to an easing cycle aimed at shoring up the economy following a prolonged battle against surging inflation. Rates had previously been at a more than two-decade high for over a year.

Along with the first drawdown since March 2020, an updated “dot plot” of officials’ policy forecasts showed that policymakers now expect the benchmark fed funds rate to dip to 4.25% to 4.5% by the end of 2024. This would suggest either another jumbo half-point rate cut or two smaller quarter-point cuts at the Fed’s two remaining gatherings this year.

In a note to clients on Friday, the analysts said that, heading into the Fed’s much-anticipated decision on Wednesday, “much of the expected rate cut was priced into markets.”

However, they said that while that was the case for “bonds, the dollar and defensive equities, it clearly wasn’t” for other portions of the market, particularly technology and discretionary sector names.

The resulting appetite for riskier assets helped fuel a surge in the benchmark S&P 500, which touched a record high on Thursday.

Prior to the event, the BTIG strategists had cautioned that there might be a “false breakout” that could see “a ‘sell the news’ reaction” among investors.

But, the analysts said, the “false breakout […] clearly didn’t play out.”

“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, but respecting the breakout until proven otherwise,” they added.

Regarding specific sectors, the BTIG strategists said they remain “cautious” on consumer staples, “would begin to trim some energy exposure,” and “note that software is making new highs after seven months of consolidation.”