This week, the United States first announced lower-than-expected PPI and CPI data , showing that inflation continues to be under control. The July retail sales data released yesterday (15th) night was significantly lower than expected, indicating that consumers remain resilient despite high prices and high borrowing costs.
In addition, the number of people claiming unemployment benefits last week also dropped to 227,000, less than the expected 235,000, indicating that the job market is still active. The above data alleviated investors' concerns about the US economic recession and encouraged the four major US stock indexes to rise across the board on the 15th.
Wells Fargo: Cutting interest rates will lead to a once-in-30-year stock market rally
Against this background, Paul Christopher, Wells Fargo's head of global investment strategy, said in an interview with CNBC on the 15th that the stock market is preparing for a rise that has not been seen in thirty years.
He pointed out that there are similarities between today's market and the market in 1995, and investors are in a similar environment because inflation is falling, the economy is not collapsing, and the Commerce Department estimates second-quarter GDP growth at 2.8% annually. He said:
The Fed is in a good position to do this if it can be proactive enough. I suggest the Fed cut interest rates by 50 basis points in September, and make a few more cuts before the end of the year... We still have a good chance of a soft landing for the economy.
Christopher said Wells Fargo expects greater volatility in the stock market in the coming months due to uncertainty surrounding geopolitical tensions and the presidential election, but added that if the Fed eases policy appropriately, then after that Investors may make substantial gains.
Lower short-term interest rates are likely to benefit financial and technology stocks, as deposits at financial institutions increase and profits at technology companies improve.
Both trends "are exactly what happened in 1995."
Christopher added that in the market, financial stocks initially led the gains, and then technology stocks took over, and then the entire stock market entered a cyclical upward trend.
Morgan Stanley: The U.S. economy will achieve a soft landing
On Monday, the Morgan Stanley research team issued a report reiterating its view that the U.S. economy will achieve a soft landing. The agency explained that as inflation levels continue to decline, this will stimulate the Federal Reserve to start cutting interest rates at the upcoming September policy meeting:
Our economists' base case for a soft landing in a resilient economy remains unchanged, and we expect continued declines in inflation to drive a rate-cutting cycle, starting with the September FOMC meeting, with three quarter-point (1-yard) cuts in 2024. of interest rate cuts.
However, the market will likely continue to challenge the soft-landing view (that the U.S. economy continues to slow down but does not collapse) until some good data emerges.
Economists at the Federal Reserve Bank of New York believe that the probability of an economic recession in the United States by July next year is 56%.
Will the market rise if the Fed cuts interest rates?
However, as the Federal Reserve begins to cut interest rates, will the market usher in a wave of gains? It depends more on the overall economic conditions at that time, whether to take the initiative to cut interest rates to promote economic development, or whether a black swan event occurs and is forced to cut interest rates. Therefore, investment professionals pay close attention to whether the current economic situation is a soft landing or a hard landing.
However, even if it is a soft landing, it may be reflected in advance due to market expectations and there will be no further rise after the interest rate cut.
In summary, interest rate cuts will not directly open the bull market for risky assets such as stocks. The related effects are often already Price In. From the perspective of historical rules, interest rate cuts themselves are difficult to become the fundamental driving force for the rise of Bitcoin and crypto markets.
Extended reading: Can interest rate cuts return Bitcoin to a crazy bull market? Review of changes in U.S. interest rates over the past 35 years, the truth is more difficult
