Markets: How many rate cuts are being priced in for 2024?

Wall Street is increasingly bullish on the market outlook (^GSPC, ^DJI, ^IXIC) in 2024. Saxo Senior Fixed Income Strategist Althea Spinozzi and Roundhill Investments Chief Strategy Officer David Mazza join Yahoo Finance Live to discuss what 2024 may hold in store for the Fed's interest rate policy and how markets are already pricing in expected interest rate cuts.

"Realistically, we believe that inflation is going to have lesser importance than growth throughout 2024. But central banks are going to be cautious about that," Spinozzi says. "So, right now, the market is pricing in five interest rate cuts by the end of 2024. We believe that that is ahead of itself."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

BRAD SMITH: With more stock market bulls making the case for new highs in 2024, investors want to know what are the best ways to play these anticipated gains in the year ahead. For a look ahead into 2024, we're joined by Althea Spinozzi who is the Saxo senior fixed income strategist. And we've got Dave Mazza who is the Roundhill Investments chief strategy officer.

Great to have you both here. And early happy holidays to you. Althea, I want to begin with you. If we're looking out to 2024 and dusting off the crystal ball to the extent that we may, or it's out of the shop, what are the key things that investors should be watching for that could potentially propel the markets to some of the new highs that some out there are expecting?

ALTHEA SPINOZZI: Well, it's not going to be different from 2023 in terms of what things to look out for. It's going to be inflation, growth, and unemployment. And realistically, we believe that inflation is going to have lesser importance than growth throughout 2024. But central banks are going to be cautious about that.

So right now the market is pricing five interest rate cuts by the end of 2024. We believe that that's ahead of itself. And what we are going to see probably at the beginning of 2024 is market pricing out some of those interest rates cuts. And that is likely to provoke another rise in yields that are going to probably hit again 5% before the bond bull market begins.

- David, I want to ask you, what do you think about the Magnificent Seven and their set up for 2024? Is this still the place to be?

DAVID MAZZA: I'd have to agree because I'd have to agree with my fellow panelists comments. If we take a massive step back, the economic background hasn't changed much. We know growth is slowing. We're hoping for a soft landing. Inflation is still high but coming down. And the Federal Reserve and other central banks are going to be incredibly cautious about cutting rates again to spur I think some of the euphoria that we saw before.

So investors actually are likely going to continue to stick with what's worked at least for the first half of 2024. And that's the Magnificent Seven. These companies again, there's a lot of naysayers out there about their valuations. But they offer incredibly high margins. They have stable pricing power. And they're more than just one business, right?

Apple has many businesses. Alphabet has many businesses, Meta and the like. So we think of them as just seven securities. But if you pick them apart, they offer a lot of different opportunities across the technology and consumer space.