On Friday, San Francisco Federal Reserve President Mary Daly made a speech indicating that multiple interest rate cuts would be made by the central bank. This echoed similar comments made by Boston Fed President Raphael Bostic who claimed he could “for sure” see three cuts.

US Bank Wealth Management Senior Investment Strategist Tom Hainlin joins Yahoo Finance to discuss the potential for interest rate cuts and what that would mean for the broader markets moving forward.

Hainlin comments on what would be an important factor to properly predict markets: "What we're most interested to see kind of what that dot plot looks like coming out of the March meeting. Has the Fed changed their expectations for what 2024 looks like now that the market's caught back up with it? You noted the hot CPI print, the hot PPI print, that's likely to keep the Fed where they are through at least the first five months of the year, perhaps six months of the year. That kind of pushes us into a higher for longer rate environment in the first half. Then the question is how does the consumer respond to that, and how do smaller businesses respond to that since they're more tied to shorter term interest rates and shorter term bonds for financing."

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

Editor's note: This article was written by Nicholas Jacobino

Video Transcript

JULIE HYMAN: Well, let's talk more about this week's market moves and what it means for the Fed moving forward. Let's bring in Tom Hainlin, US Bank Wealth Management senior investment strategist. Tom, thanks for being here.

So we just outlined what we have seen this week. All of it has equaled a little bit of a dip on the weekly basis in the markets, but how do we come out of this week with any kind of a clear picture? What do we do from here?

TOM HAINLIN: Yeah, Josh, Julie, great to see you both this afternoon. Thanks for having us on. The market looks like it's going to end the week where it started. It really is pretty close. So an event-filled week, but the market really is kind of finishing up flat for the week.

But I think the real key this week has been watching expectations recalibrate in terms of what are people expecting that the Fed may or may not do in 2024. We got through the fourth quarter of last year, you had expectations as high as seven or eight cuts priced into the bond market. Now that expectation is down to about three and a half.

You squeezed out this sort of excess enthusiasm or optimism for the Fed and expectations for 2024. We think that's been leading to a lot of the volatility we've seen as we closed out 2023 and started 2024. We're now kind of almost back to where the market's caught up to the Fed, which sets up that key Fed meeting coming up here in March.

JOSH LIPTON: And as you look ahead to these Fed meetings, Tom, I mean what is your-- what is your call? When do you think they start cutting in by how much? And how much does that-- how much does that impact, Tom, where and how you want to put money to work?

TOM HAINLIN: Yeah, so at the December meeting, the Fed kind of moved the dots from two to three and the market tried to run ahead of that quite a bit. We were most interested to see what that dot plot looks like coming out of the March meeting. Has the Fed change their expectations for what 2024 looks like now that the market's kind of caught back up with it?

You noted the hot CPI print, the hot PPI print, that's likely to keep the Fed kind of where they are at least through the first five months of the year, perhaps six months of the year. So that kind of pushes us into a higher for longer rate environment in the first half. Then the question is, how does the consumer respond to that and how do smaller businesses respond to that since they're more tied to shorter-term interest rates and shorter-term bonds for financing?

JULIE HYMAN: And also I would ask how you respond to that as a strategist, right, how you respond to all of this. Are you changing your view as to where stocks are going to go given some of this data that we've gotten recently or do you hold fast to the strategy and stay the course?

TOM HAINLIN: Across you know different asset classes like stocks and bonds for stock investors, we've been broadly allocated really across the market cap, large cap, mid cap, small cap. Obviously, the market is higher weighted toward those secular growth tech companies. That's where you've seen the strength of earnings, and cash flows, and visibility into those trends like AI, and cybersecurity, and cloud spend, and that. So we've been cap weighted for investors just recommending broad allocation.

We do find areas of the bond market that are attractive. One of the things that's happened this week is you've had a back up in bond yields. That provides some more interesting and attractive compensation for folks especially sitting in cash looking to get invested. So taking advantage of bond yields where they are and where they've kind of risen to this week, those are some of the areas of the market that we find interesting.