Last week, the Federal Reserve decided to pause its rate hiking efforts to slow down inflation.

Fed Chair Jerome Powell made it clear that the central bank is not done fighting inflation yet, and that this is just a brief pause to allow the committee to observe how the rate hikes impact the economy.

From where I sit, they are slowing economic activity without pushing inflation back to the 2% level.

Here’s what that means for stocks…

The Fed made it clear that it is not done raising rates, as the infamous dot plots call for two more rate hikes this year, increasing the terminal rate to 5.6%.

Fed officials expect to see rate cuts starting in the first quarter of next year and continue until Fed funds rates are back under 3%.

Over at the Chicago Mercantile Exchange, the Fed Watch tool shows that traders expect similar results. Traders expect hikes in July and see the possibility of more hikes later in the year.

By the first quarter, market participants expect to see rate cuts with Fed funds dipping below 4%.

What does this mean for stocks?

That is probably the wrong question, with the index at 25 times earnings and the NASDAQ 100 PE now well over 30. Markets are overvalued, and the economy is expected to slow.

This is not a recipe for broad market success.

Putting cash into undervalued sectors like banking and real estate investment trusts is fantastic, however—especially on pullbacks. (Of course, you must avoid most office REITs until we see pricing that better reflects the reality of big city downtown office properties.)

The biggest opportunity is right in front of you, and most people are going to ignore it.

Unfortunately, most investors will pay attention to…

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