The Debate on Wall Street: Did the Federal Reserve Pivot Too Soon?


The S&P 500 is nearing a record after the Federal Reserve signaled it would cut interest rates next year. Investors are betting that the US economy will have the most optimistic outcome: a Soft landing and cheaper borrowing costs.

But some Wall Street veterans are already raising doubts about the Fed-driven rally and debating its durability.

The rise in stocks was almost unthinkable a year ago, when wall street delivered mediocre forecasts for the economy and markets due to fears of recession and persistently high inflation. Instead, the benchmark S&P 500 index has recovered and closed yesterday within 1.6 percent of the high it reached in January 2022.

The latest good news for bulls: The Federal Reserve signaled Wednesday that it would cut interest rates three times next year as it predicted inflation would cool. Global stocks and bonds have soared since then, with investors becoming increasingly confident that a period of credit crunch is coming to an end.

But the Fed's dovish turn has put Europe's central bankers in a bind. Futures traders they were betting yesterday that the European Central Bank would follow the Federal Reserve's lead and forecast aggressive cuts next year. Instead, Christine Lagarde, the president of the ECB, dedicated much of her press conference Rejecting such expectations.

Wall Street is also divided on whether the Federal Reserve can pursue rate cuts. “I'm still not convinced that we're going to get the cuts that the Fed is talking about, and certainly not the cuts that the market is talking about for next year,” Lee Ferridge, head of multi-asset strategy at State Street. Global markets, he told DealBook.

In the opposite camp: Goldman Sachs economists predict that the Federal Reserve will begin reducing borrowing costs in March, and futures traders forecast cuts totaling up to 1.5 percentage points next year.

Is the Fed pivoting too soon? Ferrridge notes that American consumers are still spending, as evidenced by yesterday's report strong retail sales data, and that the economy and labor markets continue to grow strongly. Those conditions could release the inflation genie from the bottle. “The fight against inflation is not won,” he said.

And Larry Summers, former Treasury Secretary and outspoken critic of the Federal Reserve's handling of inflation, has expressed concerns that the US central bank is sending contradictory messages.

Why cut rates if the economy looks pretty good? That's a question market watchers, including economist David Rosenberg, are asking. The cuts planned by the Federal Reserve would suggest that the United States is on the verge of recession, he said. If that's the case, why are investors buying stocks at such a dizzying rate?

Ferrridge noticed a similar disconnect. “That kind of shows 'the puzzlement in the market' about the Fed's messaging this week,” she said. “What do they know?”

The Biden administration is pressuring Israel to limit its campaign in Gaza. Jake Sullivan, President Biden's national security adviser, urged Israeli officials to end their large-scale ground and air operations. At the end of this year and focus on more specific tactics, The Times reports. That suggestion is the latest sign that Biden, who publicly backed Israel after the Oct. 7 Hamas attacks, is under pressure to curb the country's military campaign.

The EU opens the door for Ukraine to join the bloc. Even like Hungary forced a delay in financial aid In kyiv, the news that European leaders were ready to start accession talks gave some hope to Ukraine. That said, joining the EU would take years, if at all, and US military assistance to Ukraine is still in limbo.

General Motors and its autonomous vehicle division cut jobs. The cruise is the dismissal of around 900 employees, or almost a quarter of its workforce. The move is part of a recovery effort after the company removed its vehicles from the roads following an Oct. 2 crash involving a pedestrian. Meanwhile, GM is laying off 1,300 workers in Michigan.

Netflix resumes advertising on X. The streaming giant is posting ads again on the social network, The Wrap reports, after joining a boycott to protest Elon Musk's endorsement of an anti-Semitic conspiracy theory. Meanwhile, Musk has told lenders of his $44 billion acquisition of the company that you won't lose money in the deal, despite a huge loss in advertising revenue, according to The Financial Times.

When activist investor Nelson Peltz formally began a proxy fight at Disney, his second fight in as many years, he took inspiration from a figure from the company's past: Jay Rasulo, its chief financial officer from 2010 to 2015.

The choice of Rasulo as nominated director (along with Peltz) aims to establish a contrast between the Disney of yesteryear and the company of today that faces many challenges.

Rasulo was once considered a possible successor to Bob Iger as CEO. A two-decade veteran of Disney, he oversaw the entertainment giant's theme park business, including a renovation of the California Adventure resort and the opening of Hong Kong Disneyland. In 2009, he became chief financial officer and left in 2015 after Tom Staggs was promoted to chief operating officer from when he ran the parks business.

Rasulo told the Times that his nomination did not mean he wanted to return to management: “We can ask the right questions in the boardroom,” he said. “We can right a ship that I really like.”

Peltz is trying to remind Disney shareholders of better times. “I want Disney to go back to the way it was when Jay Rasulo was here as CFO, because that's when the company understood the taste and smell of success,” the investor said. told the Wall Street Journal.

Ike Perlmutter, former chairman of Marvel and one of Disney's largest individual shareholders, is another former Disney executive involved in the activist campaign. (Perlmutter was expelled from Disney in the spring after years of clashes with Iger and others.)

But Rasulo's background in finance may clash with that of Disney's creatives. The Journal reports that as CFO, he focused on the profit potential of the sequels:

“I was telling investors that Disney's priority was to make more content like 'Toy Story,' because big franchises were the best way for Disney to grow quickly and generate a lot of revenue.”

That focus appears to be weakening at Disney, after recent installments in the Marvel and “Indiana Jones” universes underperformed. At the DealBook SummitIger admitted that the company was producing too many sequels without regard to quality: There has to be a reason “beyond commerce” to make one, he said.

—Steve Schwarzman, co-founder and CEO of Blackstone, at the investment giant Christmas video inspired by Taylor Swift. The unashamedly self-aware clip explores the joys of alternative investing and features executives like Jon Gray, its president, and plenty of glitter.

There are less than three weeks until the deadline to close a deal between the PGA Tour and Saudi Arabia's sovereign wealth fund, but the American golf organization is still riven by internal conflicts and mistrust between players and executives. Reporting by Lauren Hirsch of DealBook and Alan Blinder of The Times.

A reminder of how we got here: The tour and the Public Investment Fund signed a tentative agreement on June 6 to combine the PGA Tour with LIV Golf, its Saudi-backed rival. The agreement was closed in secret, with the circuit players and the majority of the members of its board of directors remaining in the dark. Many details, including valuation and governance, must be worked out by Dec. 31, although talks may be expanded.

The tour has made some concessions. In August, Tiger Woods joined the board, equalizing the number of external players and directors at six each. The tour also agreed to keep Colin Neville, a banker who advised the players, informed about the negotiations with the PIF.

But many players are still angry. “Since June 6, trust at the highest level has been broken,” said Adam Scott, who chairs the tour's Player Advisory Council. “Nothing has changed to restore that trust.”

Frustrations include its limited influence on outside director appointments. He resignation The departure from the board of AT&T CEO Randall Stephenson, whom many players supported, also left a sting. (Two players were on the committee that recommended Stephenson's successor, Joseph Gorder.)

Some say disagreements are normal. “I've learned that any great board needs disagreements to come to the best solution, and we've had a lot of disagreements this year; even the players have had disagreements,” said Webb Simpson, player and board member. “But we're all trying to get to a better place.”

Whats Next? The tour is in talks with Strategic Sports Group, an investment firm led by Fenway Sports Group, owner of the Boston Red Sox, about a deal that would pump $3.5 billion into a newly formed for-profit company with a valuation of up to approximately 12 billion dollars. . Meanwhile, LIV continues to hunt for talent: last week it recruited Jon Rahm, third in the world.



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  • Venture capital firm Andreessen Horowitz said it would get involved in politics, backup candidates who favor fewer regulations for technology companies. (A16Z)

  • Kevin McCarthy, the former House speaker who is retiring from Congress this month, said your next career moves It will involve artificial intelligence, space and making money from his connections in Washington. (Axios)

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