-
JPMorgan said the stock market is not guaranteed to rally after the Federal Reserve cuts rates.
-
If the Fed cuts rates in response to weaker growth, the positive impact may be moderate, the firm wrote.
-
Other analysts are more optimistic about the economy and the positive effect of rate cuts on equities.
Interest rate cuts are on the horizon, but investors who think this will provide a fresh boost to the stock market may be wrong, JPMorgan said.
In a new research note, JPMorgan strategists led by Mislav Matejka said that any rate cuts by the Federal Reserve will be at least partly in response to a slowing economy, which could offset the positive effect on stocks.
“The Fed will start easing rates, but in a more reactive manner and in response to weakening growth; this may not be enough to trigger a further leg higher,” the strategists led by Mislav Matejka wrote on Monday.
Additionally, JPMorgan wrote: “We are not out of the woods yet, September has been a seasonally challenging month for stocks.”
The company’s view contrasts with the more optimistic forecasts of those who believe that a post-rate cut rebound is on the horizon.
For example, a Wells Fargo analyst recently indicated that stocks are poised for a rally not seen in three decades once Federal Reserve policy eases.
According to Paul Christopher, director of global investment strategy, the current market has strong parallels to that of 1995, and with the Federal Reserve proactively cutting amid steady GDP strength, further gains seem likely.
Meanwhile, veteran strategist Jim Paulson suggested the Fed’s shift would open the door to a “new bull market.”
“They opened up a lot more positive forces for the stock market that just weren’t there,” he said, speaking after Fed Chair Jerome Powell confirmed that interest rate cuts were likely during last month’s Jackson Hole Symposium.
Once the Fed cuts, these forces include accelerating money growth and falling bond yields, which push private sector confidence higher, Paulson said.
Friday’s nonfarm payrolls report will be the next big data point for the Fed, which is currently expected to cut rates by 25 basis points at its late-September policy meeting.
A particularly weak report could rekindle calls for a deeper rate cut in September (possibly 50 basis points), as well as an accelerated pace of cuts ahead of the November elections and at the end of the year.
Read the original article on Business Insider