It’s no secret that the Federal Reserve has been cutting interest rates, and according to the latest Bloomberg Markets Live Pulse survey, this trend will continue to benefit US stocks over government and corporate bonds for the remainder of the year. A whopping 60% of the 499 respondents believe that US equities will deliver the best returns in the fourth quarter. This bullish sentiment extends to emerging markets as well, with 59% favoring these markets over developed ones.
This confidence in riskier assets aligns with the recent optimism on Wall Street following the Fed’s half-point rate cut this month. Additionally, China’s stock market saw its biggest rally since 2008 after the government implemented economic stimulus measures, further boosting investor sentiment.
Yung-Yu Ma, chief investment officer at BMO Wealth Management, highlighted the challenge of high short-term interest rates in the US economy. With the Fed cutting rates and signaling further easing in the future, investors are increasingly bullish on US equities.
The MLIV Pulse survey revealed that the majority of respondents expect the Fed to deliver quarter-point cuts at its upcoming meetings in November and December. This dovetails with market expectations, as swaps traders are pricing in around three-quarters of a point in cuts by year-end.
Despite the positive outlook for stocks, investors are wary of buying oil, with 36% citing it as the trade to avoid for the rest of the year. Concerns about oversupply due to rising production outside of the OPEC+ alliance have weighed on oil prices. Buying Treasuries was the second least-favored trade, although Treasuries are still set to gain for the fifth consecutive month.
While rate cuts can be supportive of bonds, there are questions surrounding fixed income investments as the Fed’s future actions remain uncertain. Long-term Treasuries, in particular, are a point of concern given the potential for inflation to rise as the central bank continues to ease.
The survey also showed limited enthusiasm for the US dollar, with 80% of respondents expecting it to either remain flat or decline by more than 1% by year-end. This sentiment reflects the ongoing search for yield in a low-interest-rate environment.
In conclusion, the current market environment favors risk assets like US stocks and emerging markets, while traditional safe havens like Treasuries, the dollar, and gold are being sidelined. With the Fed expected to continue cutting rates, investors are positioning themselves for potential upside in equities while remaining cautious about certain trades. Stay tuned for more updates on market trends and investment opportunities on Extreme Investor Network.