After the rate cut, the sharp rise is just a flash in the pan? Singapore's GIC investment chief warns: inflation may come back faster

The day after the significant rate cut by the Federal Reserve, the latest release of unemployment data has strengthened investors' confidence in the "soft landing" of the economy, and the US stocks surged. The overnight Dow broke through 42,000 points, the S&P closed above 5,700 points, both hitting new highs during trading and closing, while the Nasdaq rose by 3% at one point.

However, Jeffrey Jaensubhakij, Chief Investment Officer of Singapore's sovereign wealth fund GIC, warned that amid rising inflation risks, the market prosperity following the Federal Reserve's significant rate cut on Wednesday may be short-lived. Speaking at the 2024 Milken Institute Asia Summit, he stated:

Currently, it's all good to enjoy the current uptrend. But be prepared, the labor markets in the US, Europe, and Japan are very tight, and inflation risks may come back sooner than expected.

Jaensubhakij pointed out that as the US election approaches, politicians may introduce unnecessary stimulus measures to win votes. He also mentioned that many companies supported by GIC need to borrow funds and hope to see further interest rate cuts.

Furthermore, Jaensubhakij emphasized the significant divergence between the current US stock market and bond market regarding the economic outlook: The bond market is signaling "economic recession," while the stock market is conveying expectations of "economic acceleration." Only one of them is correct. He said:

To some extent, the signal from the bond market is that interest rates need to drop significantly as if entering a recession. However, on the other hand, the stock market believes that the economy will accelerate again, and corporate profits will rise. Only one of them is right.

In fact, since the July Federal Open Market Committee (FOMC) meeting, there has been a severe "split" in the trends of US bonds and stocks, each in its own world.

Regarding the significant rise in US stocks on Thursday, some analysts believe that the unexpected drop in the US initial jobless claims data to a four-month low that day has strengthened investors' confidence in the Federal Reserve achieving an "soft landing" for the economy.

However, several analysts have questioned the continuous rise in US stocks. Some comments suggest that Thursday's market performance more reflects a trading reaction to Federal Reserve Chairman Powell's policy stance rather than the actual impact of monetary policy. Charlie Ashley, Portfolio Manager at Catalyst Funds, pointed out that the short-term trend of the market after the Federal Reserve announces a rate cut is usually unstable and irrational.

One of the most optimistic bulls on Wall Street, Tom Lee, Research Director at Fundstrat Global Advisors, also believes that the Federal Reserve's rate cut cycle has laid the foundation for the strength of US stocks in the next one to three months. However, with the approaching November US presidential election, [there is still a great deal of uncertainty about the future trend of US stocks despite not fully believing that they will continue to rise