Key Takeaways:

• TK

The action on Wall Street this week has been dominated by the DeepSeek breakthrough out of China, which sent AI stocks like Nvidia (NVDA) on a roller-coaster ride all week long. But while AI stocks were whipsawing up and down, the rest of the market quietly powered higher because of one thing: the Federal Reserve.

We think this Fed-powered rally has legs.

It is funny to think that the Fed took a backseat this week. After all, it has arguably been the biggest driver of stocks in the past two years…

Whenever Fed Board Chair Jerome Powell sounds hawkish and acts like he wants to hike rates, stocks struggle. When Powell sounds dovish, signaling that rate cuts are coming, stocks soar.

Which is why it’s so unusual for the Fed to take a backseat, and yet that is what happened…

How the Fed’s Latest Moves Position Stocks for a Strong Year

The Fed held its January Federal Open Market Committee (FOMC) meeting on Tuesday and Wednesday, followed by a new interest-rate decision, policy statement, and press conference from Powell. Usually, those meetings take center stage on Wall Street. This week, it was a sideshow, because of the DeepSeek drama.

That doesn’t change the fact that the Fed is still arguably the most important factor on Wall Street.

The Federal Reserve controls the money flow, decides if rates are going higher or lower, and decides if the economy strengthens or slows…

It is still the most important power on Wall Street.

And this week—while everyone was distracted by DeepSeek—the Fed gave the green light for stocks to rally.

Sure, it didn’t cut interest rates. Rather, the Fed paused its rate-hiking campaign in a move that was widely expected…

The market didn’t care much about that decision. Rather, the market focused on what Powell would say about the path of interest rates going forward.

And he told the market exactly what it wanted to hear on Wednesday afternoon:

• He said inflation is still trending lower and that the Fed remains confident that it can get inflation back to 2%.
• He said that the recent inflation report was very comforting.
• He said that the economy is pretty healthy.
• And, most importantly, he said that if current trends persist, the Fed will feel comfortable resuming its rate-cutting cycle soon.

In response, the market started pricing in more rate cuts, and stocks rallied.

Looking beyond the drama in the AI industry right now, the simple economic reality is that if the Fed keeps cutting interest rates this year, those cuts will couple with deregulation and a rebound in economic sentiment to power a very strong economic growth surge over the next few quarters.

Alongside that economic growth surge, stocks will push higher.

The Final Word

So, at the end of the day, it still all comes down to the Fed. While the market was distracted by DeepSeek drama this week, the Fed quietly gave stocks the green light to rally.

So, let’s let them rally.

This could be another very good year for stocks so sitting on the sidelines is not an option. Instead, let’s look for top stocks to buy for 2025.

To help us find a few, we’re turning our attention to the world’s richest man, Elon Musk, and his AI startup, xAI. We think that startup has a lot of potential over the next few years, but it isn’t a public company. So how do you claim your share?

Click here to learn more now.

_{On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.}

P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.

Article printed from InvestorPlace Media, https://investorplace.com/hypergrowthinvesting/2025/01/the-fed-gave-the-green-light-for-stocks-to-rally-this-week/.

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