Share players and your super funds had a bad day at the office on the Aussie stock market yesterday, with the All Ords index having its worst day in three months. And it was all caused by good economic news that meant the US central bank boss told Wall Street that the US would get fewer rate cuts than expected.

You could say the Santa Trump rally was ‘grinched’ or stolen by Federal Reserve Chair Jerome Powell. This followed data drops that say the US economy was stronger than expected, so it would need fewer rate cuts. Inflation hasn’t been falling as fast as predicted because the economy has been more buoyant and optimistic than expected.

As many as seven rate cuts were thought to be on the way over 2024 and 2025. To date, the Yanks have had three rate cuts. Now the Fed’s tipping there’ll only be two next year rather than the projected four, making the expected total cuts only five, not seven.

How do we know the Fed is heading for fewer rate cuts? Well, the voting members at the interest rate meeting are asked to give their best ‘guess’ on where they think rates will go in the future.

Their ‘guesses’, sorry, forecasts, are displayed on what’s called a dot plot. That’s where the big stock market players saw the news that probably there’ll be fewer cuts. This kind of news always leads to stock market sell-offs and because our market has been driven by US positivity linked to lower inflation giving rate cuts, the Artificial Intelligence boom and lately the election win of Donald Trump, our share market’s All Ords dived 143.6 points (or 1.68%) to finish trading on Thursday at 8415.

The negativity is expected to continue today with the SPI Futures, which predicts where our market will go each day, saying we could open 40 points down. However, this was the reading before the closing bell rang at the New York Stock Exchange. It’s possible the Dow Jones index could finish up and that could help our stocks today.

This latest news from the Fed yesterday and from the latest economic data drops explain why fewer US rate cuts are now expected. This has the potential to keep stock price rises contained and could even lead to a period of negativity for share markets because there has been excessive positivity. The chart below displays this. The S&P 500 index shows how the share prices of the top 500 companies performed collectively and it’s up 23.87% in a year.

As the rise since September 2022 has been 64%, a pullback for stocks is to be expected.

S&P 500 Index

It would be nice if this stocks sell-off was only short term and the usual Santa Clauss rally, which the Yanks are famous for putting on most years, happened. But it’s more likely that the bears will try and bring stocks down further after the bulls have had it their own way for a long time.

“I think that this correction could last a bit,” Paul Meeks, Harvest Portfolio Management’s co-chief investment officer, told CNBC’s “Squawk Box” on Thursday. “You’ve seen the marquee name Nvidia come down, so what I would expect people to do [and] what I would recommend people to do is to maybe keep some powder dry.”

The only fly in the ointment would be if inflation starts to rise not fall, albeit slowly, because that could lead to talk about rate rises and that would bring a serious market dumping.

Not making it easier for the forever optimistic US investors to go hard buying stocks again, was a better-than-expected economic growth number out overnight, which was headlined by apnews.com as “U.S. economy grows at 3.1% pace in third quarter, an upgrade from previous estimate”, which doesn’t suggest the economy is slowing enough to ensure inflation keeps falling.

Markets and people like me will be watching the economic data drops to see if the Fed is likely to give two or more rate cuts this year, or less! If the latter happens, stocks will have a bad run until the oddballs on Wall Street eventually say: “We are getting fewer rate cuts because the economy is stronger than expected, so companies will be making good profits, so we better buy stocks!”

The bottom line is that I don’t see the current sell-off as the start of something bad. In fact, regular readers of my stocks newsletter, The Switzer Report, know I’ve been preparing my subscribers for a fall in stock prices, which I think will prove to be a buying opportunity.