Did Markets Go Too Far, Too Fast Is Debate to Dominate December

December’s whipsaw opening shows investors may be concerned November’s epic rallies went too far, too fast in anticipating a near-perfect soft landing for the economy.

Wall Street kicked off this week with losses for stocks and bonds in a sign that traders’ aggressive pricing for early, rapid Federal Reserve rate cuts in 2024 may have overshot.

“My gut says that the market has baked in slightly more than enough cuts for the strength of economic data for the US right now,” said Amy Xie Patrick, head of income strategies at Pendal Group in Sydney.

The reversal underscores the risks that investors face as they double down on bets that slowing growth and inflation will force the Fed to execute a policy pivot. It’s a trade that stands to pay off handsomely if rate cuts materialize — or backfire spectacularly if US policymakers opt to keep borrowing costs higher for longer.

Markets Soared as Rates Traders Bet on Steep 2024 Cuts