Core Viewpoint - The Federal Reserve's decision to maintain the federal funds rate at 3.5%-3.75% during the January 27-28, 2026 FOMC meeting marks the first pause in the rate cut cycle that began in September 2025, with a slightly hawkish tone in the statement regarding economic growth, employment, and inflation [1][4][6]. Group 1: Federal Reserve's Monetary Policy - The FOMC's decision to keep the federal funds rate unchanged was anticipated by the market, with two officials voting against the decision, advocating for a 25 basis point cut [1][4]. - The January 2026 FOMC statement described economic growth as "solid," an upgrade from the previous "moderate" characterization, indicating a more optimistic outlook [6][7]. - The assessment of the labor market showed signs of stabilization, with the unemployment rate reflecting a potential decrease in downward risks [6][7]. Group 2: Powell's Press Conference Insights - Powell's remarks were slightly dovish, suggesting that future rate cuts will depend on data, indicating that the rate cut cycle is not over yet [2][7]. - He expressed optimism about productivity improvements, linking them to stable economic growth despite a weakening labor market [2][8]. - Powell noted that current interest rates are at the upper end of the neutral range, implying there is still room for potential rate cuts [2][11]. Group 3: Market Reactions - Following the FOMC meeting, market pricing for future rate cuts remained relatively stable, with a 47.5% probability for a rate cut by June 2026 [3][11]. - The 10-year Treasury yield rose by 2 basis points to 4.26%, while the 2-year yield increased by 3 basis points to 3.56% [3][11]. - The performance of U.S. stock indices was mixed, with the Dow Jones up by 0.02% and the S&P 500 down by 0.01%, while sectors such as semiconductors and healthcare showed strong performance [3][12].

Group 1 - Morgan Stanley's Chief U.S. Equity Strategist Michael Wilson suggests that nominal GDP and earnings growth may support stock valuations due to rising inflation [1] - Since the new economic cycle began in April, the expansion of market P/E ratios has been driven by three factors: the start of a new cycle, expectations of future earnings recovery, and the support of a high inflation environment for stock risk premiums [1] - The current S&P 500 index to gold ratio is nearly 70% lower than its peak 25 years ago, indicating that stock prices are significantly lower than during the 1999-2000 period [1] Group 2 - Compared to the late 1990s, the current free cash flow yield of S&P 500 large-cap stocks is significantly higher, and the adjusted P/E ratio is about 40% lower than that time [2] - Wilson believes that the core competitiveness of the market today is stronger, with better free cash flow generation, higher operational efficiency, and solid profitability, indicating that the current market quality surpasses that of the internet bubble era [2] - Wilson predicts that April 2024 will mark the low point of the rolling recession that began in 2022, signaling the official start of a new cycle [2] Group 3 - Historical experience shows that the biotechnology sector performs strongly during Fed rate-cutting cycles, benefiting from declining back-end yields [3] - Recent positive signals in the biotechnology sector include the strongest weekly performance since 2022, driven by policies from the Trump administration and Pfizer regarding drug pricing [3] - The healthcare sector's relative valuation remains in the bottom 5% of its historical range over the past 30 years, indicating a high likelihood of outperforming the market [3]