JP Morgan: Fed rate cuts may not be able to drive a new round of stock market gains
Morgan Stanley strategist Mislav Matejka pointed out in a report that the Federal Reserve is about to cut interest rates, but this may be a passive response to the economic slowdown, not necessarily promoting a stock market rally. Unlike analysts with an optimistic outlook, Matejka emphasizes that the stock market still faces challenges in the current economic situation. In addition, the market is paying attention to the upcoming August non-farm payroll data, which will impact the Fed's interest rate cut strategy
According to the Smart Finance app, Morgan Stanley has stated that the Federal Reserve is about to start cutting interest rates, but if investors think this will bring a new round of upward momentum to the stock market, they are mistaken. Morgan Stanley strategist led by Mislav Matejka stated in a research report that the Fed's rate cut is at least partially in response to economic slowdown, which may offset the positive impact on the stock market.
The Morgan Stanley strategist said, "The Fed will start easing monetary policy, but it is more of a passive response to the slowing economic growth, which may not be enough to drive the next round of stock market gains." The strategist also added, "We have not yet emerged from the dilemma, and September is a month with seasonal challenges for the stock market."
Morgan Stanley's view contrasts sharply with those who hold more optimistic forecasts that the stock market may rebound after the Fed's rate cut. For example, analysts at Wells Fargo recently stated that once the Fed eases monetary policy, the stock market will inevitably see a rebound unseen in the past 30 years. Paul Christopher, Global Investment Strategy Director at Goldman Sachs, also stated that the current market is very similar to 1995, when the Fed actively cut rates amid stable and strong GDP, suggesting a high possibility of further stock market gains.
In addition, Jim Paulsen, the current Chief Investment Strategist at The Leuthold Group, also believes that the Fed's policy shift will open the door to a "brand new bull market." After Fed Chairman Powell sent a strong signal of a rate cut in September at the Jackson Hole Global Central Bank Annual Meeting last month, Jim Paulsen said, "This has brought unprecedented positive momentum to the stock market." He stated that under the Fed's rate cut, these rates include accelerated money growth, declining bond yields, which will boost confidence in the private sector.
Currently, the market is closely watching the US August non-farm payrolls report to be released on Friday, as this latest employment data may influence the decision on the extent of the Fed's rate cut in September. The market currently expects that US non-farm payrolls will increase from 114,000 in July to 160,000 in August, while the unemployment rate will slightly decrease from 4.3% in July to 4.2% in August. However, if the US August non-farm payrolls report shows particularly weak performance, it may reignite calls for a 50 basis point rate cut by the Fed in September, urging for a faster pace of rate cuts before the November US elections and the end of the year