JPMorgan has issued a warning that the anticipated Federal Reserve rate cuts may not provide a significant boost to the stock market. The firm argues that these cuts will be a reactive measure in response to slowing economic growth, potentially limiting their positive impact on equities. This viewpoint differs from more optimistic forecasts from other analysts.
In a recent research note, JPMorgan strategists, led by Mislav Matejka, stated that the Fed’s rate cuts may not be sufficient to drive a new surge in the stock market. They wrote, “Fed will start easing, but more in a reactive way and as a response to weakening growth — this might not be enough to drive a next leg higher.”
This perspective contrasts with more optimistic forecasts from other analysts. For example, a Wells Fargo analyst recently predicted a significant equity rally once the Fed eases its policy. Similarly, veteran strategist Jim Paulson suggested that the Fed’s pivot could usher in a “brand new bull market.”
The potential impact of Fed rate cuts has been a subject of significant debate among economists and market analysts. While some economists have noted that inflation is “becoming boring again” as numbers align with targets, suggesting a resilient economy, others have argued that sustained economic weakness is necessary before any rate cuts can be justified.
Adding to the complexity, Garry Evans, chief strategist of global asset allocation at BCA Research, warned of an impending U.S. recession, suggesting that rate cuts might not be enough to stave off economic downturn. Furthermore, potential supply-side shocks could prompt the Federal Reserve to pause its rate cuts, according to Brian Jacobsen, Chief Economist at Annex Wealth Management.
The next major indicator for the Fed will be Friday’s nonfarm payrolls report, which will influence the expected 25 basis point rate cut at the late-September policy meeting.
The potential impact of Fed rate cuts on the stock market remains a topic of debate, and investors will be closely watching the economic data and the Fed’s actions in the coming months.
