Stocks rallied with the Dow closing at a record high after the Federal Reserve's 'dot plot' signaled three interest rate cuts next year.

The rally, which was fueled by hints from Powell that the central bank is done rating rates, was enough to ‘take the lid off’ lingering investor concerns, according to CFRA Strategist Sam Stovall.

“When Fed Chair Powell actually admitted they are done raising rates and that we're most likely to be in a soft landing scenario, I think it basically took the lid off the market's concerns… it allowed stocks to shoot higher,” Stovall explained.

Strategy wise, Stovall suggests sticking with this year’s winners, as the momentum will likely hold into next year.

"Following an up year, you want to stick with your winners… let your winners ride,” Stovall added.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: Well, the street is betting on cuts in the first half of the year, and so far the fed is showing that it may actually happen. Investors pricing in six quarter point rate cuts in 2024 by the Fed. Here now, JP Morgan now seeing the first cut in June, pulling its forecast earlier than what it had initially expected in July. What more can we expect from the markets in 2024 as we get closer to those potential cuts, and whether or not this optimism is warranted.

Sam Stovall is CFRA's Chief Investment Strategist. Joining us now, and Sam it's great to see you here. So let's talk about this optimism that we are seeing, the massive rally that we got on the back of the press conference from Jay Powell last week. Was that a bit of, I guess-- Was that reaction warranted, do you think?

SAM STOVALL: Well, I think it was warranted, because Wall Street had been guessing that the Fed was finished raising rates, and then guessing that they would start to cut rates in 2024. You know, usually most estimates were for the second quarter, but now pushed into the first quarter. So when Fed Chair Powell actually sort of admitted that they're done raising rates, that we are most likely to be in a soft landing scenario, and that the Fed is discussing as many as three rate cuts in 2024, I think, basically, it took the lid off of the market's concerns and allowed it to shoot higher.

BRAD SMITH: OK, and so where then are the best places to be in the market, if we do see three, or more, rate cuts in 2024.

SAM STOVALL: Well, between the last rate hike and the first rate cut, the S&P has gained about 14%, with all sectors, all styles, and almost all subindustries in positive territory. And, not surprisingly, financials and real estate have been on the top, because those are the ones that had been pressured the most, because of the higher rates, et cetera. So many of those diversified banks, regional banks, that had been pressured, because of the sell off back in March, as well as just overall concerns of a potential recession, that, at least for the near term, has been lifted.

SEANA SMITH: So what are some of your top investment themes as we head into the new year, obviously the Fed being the massive driver of the markets here, as we count down the final weeks of the year, looking ahead to 2024, what do you have, what's top of mind?

SAM STOVALL: Well, obviously, the Fed is the first one. Also, we are in the second year of this bull market. And since World War 2, second-year bulls have added 12 and a half percent to the stock market's advance, so that is fairly encouraging. Also, we're taking a look at the presidential election year that's coming up. So first term presidency since World War 2, their election year returns have been 15 and a half percent on a total return basis with zero declines. So not a guarantee, but certainly a very encouraging statistic that this market certainly has further to run.

BRAD SMITH: If we do see a shift in the balance of power towards the end of the year, how would the markets, and when, would they begin to perhaps price that in?

SAM STOVALL: Well, interestingly enough, the full year is still positive, whether the incumbent has been reelected or replaced. Certainly an unknown quantity adds a bit of uncertainty into the marketplace, so we, traditionally, would see a bit of a softening of the market's advance after the election day has occurred, but in general investors are still optimistic for the full year.