Balanced Portfolio – Take Profit S&P 500 Equal Weight ETF (QUS) & WiseTech (WTC) Broader market Risk reduction

Date: 19/12/2024

*** GENERAL ADVICE ONLY***

Risks in Focus for FOMC Heading into 2025

The Federal Open Market Committee (FOMC) has entered 2025 with a cautious yet balanced outlook on policy, inflation, and employment. In its December meeting, the FOMC cut rates by 25 basis points, completing a total of 100bps of easing since September. However, the tone remains non-committal, with the trajectory for future rate cuts slowing. The median fed funds rate projection for the end of 2025 now sits at 3.875%, with further gradual cuts expected in subsequent years, ending at 3.125% by 2027.

While the near-term economic outlook shows resilience, with GDP growth above the long-term trend and stable unemployment projections, inflation risks remain a concern. The FOMC expects inflation at 2.5% in 2025—higher than previous estimates—due to persistent pressures and potential tariff impacts. Despite these risks, inflation is forecast to settle near the 2.0% target beyond 2026.

Key risks stem from structural economic factors, including labor market stagnation, slower household income growth, and modest business investment. Meanwhile, supply constraints, tariff effects, and fiscal policy uncertainty could amplify inflationary risks beyond 2025, challenging the FOMC’s ability to balance policy objectives.

Trade Rationale: Sell QUS and WTC

The updated FOMC outlook reinforces a risk-off sentiment, signaling a period of economic uncertainty with heightened volatility in growth and inflation trajectories. In this environment:

1. QUS (S&P 500 Equal Weight ETF): The QUS ETF, representing an equal-weighted exposure to the S&P 500, faces significant headwinds as a broad-market proxy in a risk-off environment. Slower easing by the Fed and persistent supply-side inflation risks could weigh on equity markets, particularly on mid-sized components that are more sensitive to tightening financial conditions. Additionally, ongoing fiscal policy uncertainty and tariff impacts could suppress earnings growth, making broad-market exposure less appealing.

Entry: $48.66 | Exit: 52.65 | Profit: 8.2%

1. WTC (Wisetech Global): As a high-growth tech company, WTC remains vulnerable to broader risk-off sentiment and potential tightening in liquidity conditions. Persistent supply-side inflation risks and fiscal policy uncertainty add further headwinds for high-valuation equities, warranting a reduction in exposure.