The U.S. equity market is waiting for the Fed to confirm today that despite the little uptick in inflation, is committed to support the economy and the market by lowering interest rates. The level of optimism across the board can be seen in the charts below: (1) record high equity allocations in portfolios for the last 25 years, and (2) lowest cash allocations over the same period. Today’s rate cut is already priced in. The surprise can come in today’s press conference where J Powell may suggest that the Fed will take a pause in January. If that’s the case, it will be interesting to see how investors position their portfolios for a less dovish Fed, where valuations are frozy and almost everyone is on the same side of the trade.
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