Tom Lee Explains Why ‘Fewer Cuts In 2025’ Could Boost The Market, Urges Investors To ‘Buy The Dip’ Amid Recent Volatility

U.S. stock markets could benefit from fewer interest rate cuts in 2025 despite recent volatility, according to Fundstrat‘s head of research Tom Lee, who sees the Federal Reserve’s hawkish stance as potentially beneficial for investors.

What Happened: “The fewer cuts [the Fed does] in 2025, it actually is better for this bull market because it provides a lot of future ammunition to protect the economy,” Lee said on Thursday, according to Fundstrat.

The comments followed a tumultuous period in markets, with the Dow Jones Industrial Average as tracked by the SPDR Dow Jones Industrial Average ETF DIA struggling through its longest losing streak since 1974 and the S&P 500 tracked by the SPDR S&P 500 ETF Trust SPY, suffering its steepest one-day decline since September 2022.

The selloff was triggered after the Federal Reserve cut rates by 25 basis points to 4.25%-4.5% but signaled just two rate cuts for 2025, down from four projected in September.

The central bank’s shift rattled investors who had been counting on more aggressive rate cuts. However, recent economic data continues to show resilience, with third-quarter GDP growth revised upward to 3.1% and weekly jobless claims falling to 220,000, below expectations of 230,000.

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Why It Matters: “I know yesterday’s pullback was really painful, but to us, the fundamentals supporting stocks are intact,” Lee said. He suggested that recent market declines might be driven by panicked investors selling out of momentum trades as the year ends.

The hawkish Fed outlook has particularly impacted the bond market, with 30-year Treasury yields climbing to 4.75%. Despite these headwinds, Lee maintains a bullish stance, recommending investors “buy the dip.”

Wharton Professor Emeritus Jeremy Siegel offered a similar perspective, calling the market’s reaction a “healthy” reality check after what he described as “overly optimistic” expectations for rate cuts.

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Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.