Invesco: Global economic growth is expected to improve, optimistic about cyclical and small-cap stocks

According to the Zhitong Finance APP, Kristina Hooper, Chief Global Market Strategist at Invesco, and Zhao Yaoting, Global Market Strategist for the Asia-Pacific region (excluding Japan), pointed out that the Federal Reserve unanimously decided to cut interest rates by 25 basis points as expected by the market. This indicates that the Federal Reserve is satisfied with the current level of inflation and believes that the risks to employment and inflation targets are balanced. Invesco believes that global economic growth is expected to improve, thus favoring cyclical and small-cap stocks due to their attractive valuations and greater sensitivity to the economic cycle. Similarly, Invesco also leans towards developed markets (excluding the U.S.) and emerging market stocks. As central banks begin to cut interest rates, expected valuations will also be supported by a reduction in discount rates.

Since the end of summer, the U.S. economy and labor market have continued to strengthen. Federal Reserve Chairman Jerome Powell pointed out that overall U.S. inflation is currently showing a slowing trend, but housing services prices are an exception; however, this reflects past inflation pressures rather than current inflation pressures.

Powell explained that the reason the Federal Reserve decided to continue cutting interest rates is that it believes monetary policy remains restrictive. Additionally, he stated that the U.S. labor market has cooled over the past two years and is still slowing, and the Federal Reserve does not want to see it decline further. When asked what data would lead the Federal Reserve to pause interest rate cuts in December, Powell did not provide a specific response. Clearly, the Federal Reserve will make decisions based on overall data, as it is currently focused on its "dual mandate": achieving full employment and core inflation at 2%.

Although Invesco expects the Federal Open Market Committee meeting in December to cut rates by another 25 basis points, there is still a possibility of pausing rate cuts. Currently, this round of easing has seen a total cut of 75 basis points. This is equivalent to the total cuts during the 1995-1996 easing cycle. Moreover, Invesco believes that this time the Federal Reserve has greater room for adjustment, which is very favorable for risk assets.

Regarding bonds, given that bond coupon rates are close to multi-decade highs, Invesco believes that bonds will also provide attractive opportunities with the rate cuts. Considering that the duration of bank loans is nearly zero, Invesco expects that compared to other fixed income asset classes, they can be insulated from interest rate fluctuations while enhancing fixed income portfolios. Invesco anticipates that the U.S. dollar will weaken, so local and hard currency bonds in emerging markets are expected to perform strongly.

Regarding real estate, Invesco believes that market prices have absorbed severe negative sentiment, so as the environment improves, the market has the potential for significant upside. For example, the reduction in policy rates provides room for a decrease in real estate debt costs and capitalization rates, which will boost transaction activity and promote price recovery. Additionally, in terms of currency, Invesco expects that as the Federal Reserve begins to cut rates, the U.S. dollar will start to weaken within the year, at least relative to some major currencies