US stocks will outperform the nation’s government and corporate bonds for the rest of this year as the Federal Reserve keeps cutting interest rates.
Exactly 60% of the 499 respondents said they expect US equities will deliver the best returns in the fourth quarter. Outside of the US, 59% said they prefer emerging markets to developed ones. And as they ramp up these bets, they’re avoiding traditional ports of calm, such as Treasuries, the dollar and gold.
It’s a risk-on view that dovetails with bullish calls emerging on Wall Street following the Fed’s half-point rate cut this month. China’s biggest stock rally since 2008 after Xi Jinping’s government ramped up economic stimulus also helped boost the bullish attitude.
“The biggest challenge that the US economy has been facing is actually high short-term interest rates,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “We’d already been leaning into risk assets and leaning into US equity,” he said, and “if there were a pullback, we would consider even adding to that.”
The Fed slashed its benchmark rate from the highest level in two decades on Sept. 18, and the median official forecast projected an additional half-point of easing across the two remaining 2024 meetings, in November and December.
‘Room to Cut’
The MLIV Pulse survey showed that 59% expect the Fed to deliver quarter-point cuts at each of those two gatherings. Thirty-four percent anticipate steeper reductions in that period, totaling three-quarters of a point or a full point. That’s more in line with swaps traders, who are pricing in a total of around three-quarters of a point of cuts by year-end.
Investor confidence that the Fed can engineer a soft landing has grown, putting the S&P 500 Index on track to gain in September — historically the gauge’s worst month of the year — for the first time since 2019.
“The Fed has a lot of room to cut as do many other central banks,” said Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management. “That sets up a good backdrop for the economy in the US, in particular. That doesn’t erase the tightness of valuations, but makes them more justifiable.”
