With the Federal Reserve finally cutting interest rates by 50 basis points and opening a loose cycle on Wednesday, the market generally believes that this has "set the stage" for further rebound in the US stock market. But Bank of America doesn't seem to fully agree.
Michael Hartnett, strategist of Bank of America, said that this sounds like good news for investors, but with the arrival of a new round of easing cycle of the Federal Reserve, the risk of foam in some markets reappeared.
After the Federal Reserve cut interest rates by 50 basis points, the US stock market began a "frenzy" on Thursday: the three major indexes collectively closed higher, among which the S&P 500 index and the Dow Jones Industrial Average both hit new historical highs. Despite being affected by the "three witch days" on Friday, the three major indexes fluctuated, but the Dow Jones Industrial Average hit a new historical high.
In a report released later on Wednesday, Bank of America Global Research predicts that the Federal Reserve will cut interest rates by 75 basis points in Q4, compared to the previous expectation that the Fed would cut interest rates by 25 basis points each at its November and December meetings.
In addition, the bank believes that the Federal Reserve may cut interest rates by another 125 basis points in 2025, lowering the final interest rate from the current federal funds target rate range of 4.75% to 5.00% to the range of 2.75% to 3.00%. Bank of America economists believe that after a larger rate cut, the Federal Reserve will be forced to further reduce interest rates.
According to the general market view, by the end of 2025, this will help drive an 18% increase in profits for companies in the S&P 500 index. Hartnett said that this growth is' not much better than risk '.
He also added, 'There is no better combination for risk assets than this, so investors will be forced to chase a rebound.'. He said that since the risk of a foam was returning, he suggested buying bonds and gold when they fell.
He had previously warned that with the soaring investment in artificial intelligence, there might be a technology foam. In February this year, Hartnett said that the "baby foam" in the field of artificial intelligence is "growing", and if the monetary policy is relaxed, it may promote the market to rise.
Now, that moment has arrived. In the latest report, Hartnett suggests that in the context of further expansion of artificial intelligence investment and loose policies, the best way to allocate investment portfolios is to allocate bonds and gold to hedge against growth and inflation risks.
Using risk rebound to buy bonds and gold, because the 'tail' of recession and inflation re acceleration is too unpopular, "he wrote.
Finally, the strategist also stated that investing in stocks and commodities outside the United States is a good way to trade around the theme of an economic "soft landing," which is an inflation hedge tool. This is because Hartnett believes that international stocks are cheaper and are starting to outperform their American counterparts.