Reported 7 months ago
The Federal Reserve (Fed) maintained interest rates as expected on June 13, with forecasts indicating a higher probability of a 1-point cut or no cut this year. This stance has led to a positive view on risky assets, especially optimistic forecasts for US stocks, the Nikkei, and tech stocks. Factors such as progress in summer inflation and potential weakening of the job market could increase the likelihood of a rate cut this year. Despite short-term market volatility due to inflation stickiness, positive views on risky assets are maintained, with recommendations to overweight stock investments, particularly in Japanese stocks and tech stocks for the long term. While other regions have begun cutting rates, the atypical start of the easing cycle is attributed to strong US employment data and inflation levels above target, leading the Fed to refrain from substantial and rapid rate cuts. Overweight positions on US and Japanese stocks are temporarily recommended, with a focus on key policies such as trade, immigration, and energy post the US presidential election, foreseeing potential inflation upticks regardless of the elected president. Positive outlook on Japanese stocks is due to mild inflation, robust profit growth, favorable shareholder reforms, and the gradual normalization of monetary policies by the Bank of Japan. While global funds have flowed into bond funds for 24 consecutive weeks in anticipation of a Fed rate cut, the reality is lower returns or even minor losses, prompting the importance of defensive and yield-boosting bond investments before the official rate cut. Bond market volatility in the first half of the year stemmed from over-optimistic rate cut expectations, with market sentiment now looking towards reduced future volatility risks post the European Central Bank (ECB) rate cut in June and expectations of a parallel move by the Fed. Geopolitical uncertainties, the US presidential election, and rate cut ambiguities may heighten market volatility in the latter half of the year, suggesting a focus on investing in high-quality equities paired with investment-grade bonds to mitigate downside risks, presenting an optimal investment strategy.
Source: YAHOO