The stock market may be able to enjoy its typical year-end melt-up once Wednesday’s Federal Reserve decision is over, according to Bank of America. The central bank is widely expected to lower its benchmark interest rate by a quarter-percentage point on Wednesday. Gonzalo Asis, an equity-linked analyst at Bank of America, said in a note to clients that the move may clear the way for the so-called “Santa rally.” “The 2nd half of December is typically the 2nd strongest period of the year for US equities, and the S & P has been up 83% of the time in December of Presidential election years. This week’s FOMC (not expected to bring fireworks based on the [0.76% S & P 500] implied move) may be the last hurdle before a Santa rally,” the note said. The stock market may need the all-clear sign to find its footing for the typical holiday season move higher. Equities have been struggling in recent days, with the Dow Jones Industrial Average falling for nine consecutive sessions for the first time since 1978. .DJI 5D mountain Dow Jones Industrial Average over the past five sessions Of course, a rally would probably require not only a rate cut, but also a lack of negative surprises from Fed Chair Jerome Powell’s press conference or from central bankers’ updated economic projections. Those forecasts will be included the dot plot representing the expected path of interest rates. Many on Wall Street are expecting the Fed to project fewer rate cuts over time than it did during the previous dot plot release in September. The labor market has held up better than expected since that meeting, while recent inflation readings show that the rate of price increases is still above the Fed’s 2% target . “Market participants will be watching the economic projections to better understand the medium-term path for policy rates and whether the 2025 dot will show three or two cuts. We think it will land on three compared to four in September. Additionally, we expect the dot to show two cuts in 2026 and for the long-run to be revised up to 3.125% from 2.9%,” the Bank of America note said.
