Fed Cut Boosts Market; Can Stocks Break Sept Jinx?

After the Federal Reserve took the first step in the interest rate cut cycle,the market showed a general upward trend as risk appetite warmed up,and global capital flowed back.

The U.S.stocks made a new round of offensive towards the historical high.

Now,the three major stock indices have recouped the losses caused by the short-term turmoil at the beginning of the month.

After digesting the monetary policy benefits,whether the market can break the September curse or face profit-taking pressure may depend on the game between economic indicators and the subsequent policy path.

The Federal Reserve has retained the right to choose subsequent policies,and after four years,it has started a new round of easing cycle.

As inflation gradually approaches the target,the Federal Open Market Committee (FOMC) now pays more attention to the labor market conditions,hoping to balance the dual mandate of full employment and price stability.

Since the second half of the year,the tension in the supply and demand of employment has cooled down,with a decrease in corporate recruitment and job vacancies,which has raised concerns about a possible hard landing.

Federal Reserve Chairman Powell said at the press conference that the labor market conditions have softened,and job creation has slowed down in recent months.

He emphasized the importance of preemptively protecting the economy,"The time to support the labor market is when it is strong,not when layoffs begin."

After the unexpected fluctuation in the non-farm payrolls in July,recent data show that the job market is stabilizing.

Labor Department data show that the number of people applying for state unemployment benefits for the first time last week fell by 12,000 to 219,000,the lowest level since mid-May.

This indicates that job growth in September is robust,and the number of layoffs is still very low,which helps to support the economy through robust consumer spending.

Oxford Economics Senior Economist Bob Schwartz said in an interview with First Financial Daily that the Federal Reserve's decision in September was a preemptive one to increase the central bank's chances of achieving a soft landing.

Looking at the dot plot,the Federal Reserve adjusted the ultimate target of the neutral interest rate to around 3%,but there is still a big divergence among policymakers,which depends on the view of economic data.

U.S.Treasury yields have stabilized and rebounded.

According to data from the Chicago Mercantile Exchange's FedWatch tool,there is about a 60% chance that the Federal Reserve will cut interest rates by 25 basis points in November,and a 40% chance of a 50 basis point cut.

The institution Stifel said in a report: "After a period of digestion,investors now praise the Federal Reserve's 're-adjustment' of policy.

After a larger,more aggressive (50 basis point) rate cut,the market now seems to expect that policy will not simply adjust policy from restrictive to neutral quickly."

Oscar Munoz,Chief U.S.Macro Strategist at TD Securities,believes that a further 50 basis point rate cut is far from certain.

"If labor market data continue to show relative stability,the market pricing for rate cuts in 2024 may also decrease.

However,we still expect the yield curve to continue to steepen."

Schwartz told First Financial Daily that recent indicators show that the U.S.economy still maintains considerable strength,and GDP is expected to achieve above-trend growth again.

He predicts that the Federal Reserve will cut interest rates by 25 basis points in November and December,returning to a regular pattern.

Of course,considering the Federal Reserve's shift to an easy policy,any downside surprise in labor market data may prompt them to cut interest rates by 50 basis points again in November.

The market can continue to rise,and the Federal Reserve's rate cut has received a positive response from the market.

The Dow and the S&P 500 have successively broken through historical highs.

Dow Jones Market Statistics found that all industries showed a general upward trend in the past week.

The energy sector led the rise by nearly 4%,mainly benefiting from the rebound in international oil prices.

The technology sector performed well,with NVIDIA's recovery driving the rebound in the artificial intelligence and semiconductor industries.

In addition,news that Qualcomm is negotiating a merger with Intel has also boosted market sentiment.

At the same time,the financial,non-essential consumer goods,industrial,and public utility sectors rose by more than 2%.

The flow of funds shows that the Federal Reserve unexpectedly cut the benchmark policy rate by 50 basis points,which stimulated a general attack on global risk assets including stocks and commodities.

According to data provided by the London Stock Exchange Group (LSEG) to First Financial Daily,Asian stock funds have been net buyers for the 16th consecutive week,totaling about $2.77 billion,and the sale of U.S.stock funds has dropped to a four-week low of $1.37 billion.

Michael Hartnett,a strategist at Bank of America,said that after the Federal Reserve's rate cut,the stock market may risk creating a bubble.

Commodities and international stocks are two potential alternatives.

He believes that if the Federal Reserve achieves its desired soft landing,both may benefit,and commodities provide an additional benefit of effectively hedging against the resurgence of inflationary pressures.

Societe Generale said that a large number of valuation indicators,including price-to-book and price-to-sales ratios,also show that the stock market is far above the historical average.

For example,the U.S.stock market is trading at five times its book value,while the long-term average is 2.6 times.

"The current level can be summarized in one word: expensive."

Charles Schwab wrote in its market outlook that investors are delighted with the Federal Reserve's decision to cut interest rates by 50 basis points.

For now,perhaps the old Wall Street saying "Don't fight the Fed" or "Don't fight the trend" is enough to maintain a short-term bullish momentum.

Apart from the Federal Reserve,the economy still seems to be on solid ground.

Currently,FactSet's forecast for earnings growth of the S&P 500 in 2025 is about 15%.

The institution believes that in the short term,the market still needs to deal with some bearish seasonal factors and the uncertainty of the upcoming U.S.presidential election.

There are fewer risk events in the coming week,which may be beneficial to the bulls.

However,from a technical point of view,the S&P index needs further confirmation of the breakthrough,which may bring some additional selling pressure.