Investors are clamoring for rate cuts to keep the stock market’s bull rally going, but there might be a problem with the overwhelmingly positive view of looser monetary policy, JPMorgan said Monday.
Since Federal Reserve Chairman Jerome Powell’s Jackson Hole address, investors have been hyped up over interest rate cuts as a major tailwind to stock prices. Stocks have generally rallied this year on dovish Fed signals and weak data suggesting rate cuts are more likely.
However, not all are optimistic that this month’s central bank meeting will be a catalyst for more gains.
JPMorgan said this week that the Fed decision on September 17 could end up sending stocks into a tailspin as investors “sell the news.”
“This current bull market feels unstoppable with new support forming as former tent poles weaken,” wrote said Andrew Tyler, head of global market intelligence at JPMorgan. However, he added:
“We have concerns that the September 17 Fed meeting which delivers a 25bp cut could turn into a ‘Sell the News’ event as investors pullback to consider macro data, Fed’s reaction function, potentially stretched positioning, a weaker corporate buyback bid, and waning participation from the Retail investor.”
The bank’s note highlights that the market is currently quite strong. Over the past month, the Dow Jones Industrial Average, Nasdaq Composite, and S&P 500 have all shaken off volatility and continued trending upward to record highs, but risks are building.
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This comes just after the market rallied in response to Powell’s Jackson Hole address on August 22. His dovish tone gave investors exactly what they wanted to hear, leading to fresh bets on the downward path of interest rates through year-end.
Tyler isn’t the only financial expert to express skepticism that the upcoming rate cut will boost markets. David Kelly, chief global strategist at JPMorgan Asset Management, recently revealed that he doesn’t think rate cuts will be the cure-all for the economy’s ailments.
In his view, cutting rates could lead to a lower income for retirees, more people choosing to wait to take out loans, and lingering economic uncertainty.
