U.S. Fed Leaves Rates Unchanged Again: Here’s What It Means For S&P 500

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S&P 500 is keeping roughly flat at writing after the U.S. Federal Reserve left its benchmark overnight borrowing rate unchanged at 5.25% to 5.5%.

S&P 500 index has upside to the 5,100 level

Members of the Federal Open Market Committee did, however, signal they are not yet ready to start lowering rates just yet.

The #FederalReserve statement is as expected below.
Note, in particular, the language relating to
"The risks to achieving its employment and inflation goals are moving into better balance;" and that the FOMC
"Does not expect it will be appropriate to reduce the target range… https://t.co/VFcSBQXZHj

— Mohamed A. El-Erian (@elerianm) January 31, 2024

But markets broadly expect the central bank to cut rates at some point this year – and that sentiment is a positive for the benchmark index. In fact, Savita Subramanian of the Bank of America Securities sees a possibility for the S&P 500 to push further up to the 5,100 level.

It’s pretty easy to get a little bit higher than this. If cash yields start to drop, I think there is a wall of money that could move into equity income.

Note that the benchmark index is already up close to 20% versus its low in late October.

What else was important in the FOMC statement today

On Wednesday, the FOMC statement hailed resilience of the U.S. economy and noted progress made on inflation.

That was in line with Subramanian who is convinced that the United States has successfully averted the risk of a recession in the near term. More importantly, she expects upside in the S&P 500 even if the “Magnificent 7” essentially “flatlined for the rest of the year”.

That’s primarily because there are 85 companies in the benchmark index with dividend yields that “eclipse cash yields over the next three years”, she told CNBC on Wednesday.

BofA Securities’ Subramanian is particularly bullish on financials and energy stocks. Fed’s rate decision arrives weeks after the Bureau of Labour Statistics said inflation was up more than expected in December.

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