Wall St wobbles following bumper rate cut
2024-09-19
Summary:
Asian stocks rose after the Fed's rate cut, while US stocks fell amid volatility. Concerns grow that the cut signals economic trouble.
Asian stocks mostly rose on Thursday after the Fed went with a large rate cut, though US stocks closed with modest losses amid choppy trading.
Some on Wall Street have pointed out that a 50 basis point interest rate cut could create a more ominous sign about the health of the US economy than the central bank would like to portray.
DataTrek analysed each Fed rate-cutting cycle since 1990. Among the five cutting cycles over that time period, both times they began with a 50 basis point cut (in 2001 and 2007), a recession soon followed.
The size of the interest rate cut is less relevant for equities than the health of the US economy, according to top Goldman Sachs and JPMorgan. US elections are looming as an additional risk in the near term.
More analysts were already downgrading than upgrading profit forecasts over the past few weeks. A BofA poll showed investors are “nervous bulls,” with risk appetite tumbling to an 11-month low.
Goldman Sachs also recommends buying the dip in AI stocks, citing lower interest rates on the way and solid fundamentals. It sees net income from AI companies roughly double in the next 12 months.
The Nasdaq 100 still hovered around the resistance around 19,600 and the consolidation could continue for some sessions. The bullish bias remains intact as the index stays above 50 SMA.
Disclaimer: This material is for general information purposes only and is not intended as (and should not be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by EBC or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
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