The Fed rate cut is imminent, but Wall Street's lingering concerns remain!
The Fed's rate cut is imminent, but the market remains nervous. Alessio de Longis stated that the market is eager to understand the beginning of the rate cut cycle, but whether the Fed is truly concerned about the economy will affect the interpretation. Future data will impact the possibility of a 50 basis point rate cut, rising from 29% to 35%. Rick Rieder pointed out that the Fed may ease monetary policy even without significant economic weakness. Quincy Krosby reminded that factors for a rate cut include declining inflation or a weak labor market. September historically has poor stock market performance, and the market needs to pay attention to potential uncertainties
Invesco Solutions' Senior Portfolio Manager and Investment Director Alessio de Longis said, "The market only wants to hear the news that the rate-cut cycle is starting. However, is the Federal Reserve actually telling us that they are now concerned about the economy? If so, perhaps we should look at the rate-cut cycle from a different perspective."
Key upcoming data releases in the United States include the Personal Consumption Expenditures (PCE) Price Index on August 30 and the Consumer Price Index (CPI) on September 11, as well as the Non-Farm Payrolls data on September 9.
More signs of economic weakness may once again disrupt the stock market and increase the probability of a 50 basis point rate cut by the Federal Reserve next month. Pricing in the federal funds rate futures market shows that the likelihood of this move has increased from around 29% before Powell's speech to 35%.
Rick Rieder, Chief Investment Officer of Global Fixed Income at BlackRock, wrote in a note last Friday, "The Federal Reserve's decision to adopt an accommodative policy in a situation where the economy is not particularly weak (inflation rates are still above target) could lead to a significant easing of monetary policy to address any serious weakness."
Quincy Krosby, Chief Global Strategist at LPL Financial, said a key factor affecting the stock market's direction is whether the rate cut is due to slowing inflation or a weak labor market. He said, "The market is hoping for a rate-cut cycle because inflation is declining. The question remains whether we will see further deterioration in the labor market."
Encouraging data also helps boost market performance during periods of expected volatility. According to CFRA data, September historically has been the weakest month for U.S. stocks, with the S&P 500 index averaging a 0.78% decline in September since World War II.
If bad news hits, higher stock valuations may also make investors less willing to hold stocks. According to LSEG Datastream, the forward price-to-earnings ratio of the S&P 500 index is 21, higher than the 19.6 in early August, while the long-term average is 15.7.
The intense presidential election between Vice President Harris and former President Trump may also create uncertainty during the election period from now until November 5.
According to Andre Bakhos, Managing Director of Ingenium Analytics LLC, the long-term trend of the U.S. stock market is solid as a rock, and any weakness presents an opportunity to increase risk exposure. However, "in the short term, we will face... turbulent, volatile, and erratic market movements, as no one really knows what will happen after he (Powell) reveals his hand."