In Wall Street, interest rates have become the main topic of talks. American politicians exert pressure on the central bank to lower it, markets are eagerly waiting for cuts in September, and the largest financial institutions are trying to predict the further trajectory of the Fed's policy. At the same time, analysts will draw scenarios that could end the impressive bull market on the American stock exchange.
Bank of America: Optimism towards emerging markets, but beware of valuations in the USA
The cyclical survey of Bank of America (BFA) shows that fund managers invest massively in emerging markets.
– Investors are very optimistic about the prospects of emerging markets – comments Elyas Galou, an investment strategist at Bank of America. – The combination of growing optimism about China's economy with a pessimistic look at the American dollar creates excellent conditions for this class of assets.
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As many as 37% of respondents managing the possession of Overweight (Overweight) in emerging markets. This is the highest percentage since February 2023. Moreover, 47% of respondents found this category of undervalued (under -inflammatory), which has been the highest indicator for over a year.
At the same time, although as many as 91% of respondents consider American actions to be re -evaluated, managers and so increased their commitment in this market. The share of entrepreneurs in the USA fell to 16% from 23% a month earlier. According to respondents, the shares of companies from the so -called Wonderful seven.
Scott Bessent and pressure on the Fed
Wall Street observers could surprise this week statements of the Secretary of the US Treasury Scott Bessent on the Federal Reserve Policy.
Donald Trump's administration continues actions that analysts and former heads of FEDs define as public exerting pressure on the central bank – a script whose previous presidential administrations avoided even in the sphere of appearances.
According to Bessent, interest rates in the USA are kept on “Excessively conservative” level and “should probably be 150-175 lower points lower”.
There is a high probability of cutting with 50 base points – he added. – We can see a series of foot discounts, starting with a cut by 50 base points in September.
A day later, Bessent softened his tone, ensuring that “he did not say what the Fed should do.” – I just wanted to point out that returning to a neutral interest rate (neither stimulating nor inhibiting the economy – ed.) Would require a reduction of 150 base points – he said.
Deutsche Bank: The rally on the bonds was too far away
In anticipation of interest rate reduction, the profitability of 10-year US treasury bonds fall. This means that bond prices are rising, which in turn supports the stock market, reduces the state loan costs and the interest rate on mortgage for consumers.
However, Deutsche Bank analysts believe that this bond price leap was too violent. The bank is expecting their discount.
“One of the explanations for such a position is that the target level of FED interest rates, which are valued by market participants, is too low,” the bank's analysts write.
Investors expect the cycle of reductions to end when the feet reach a level of 3% (currently 4.25%). According to Deutsche Bank analysts, this is “significantly lower than the nominal neutral foot we are observed, which means that the market expects more cuts from the Fed than justified, given the perspectives of inflation and the labor market.”
Nomura Capital: calm and gradual cuts
Nomura Capital analysts expect the federal reserve to lower interest rates in September by 25 base points.
What's more, the brokerage house forecasts two more cuts of the same value – in December this year and in March next year. In their opinion, a reduction of 50 base points is unlikely.
“The labor market slows down, but there are not many signs to be under strong pressure, and the financial conditions remain mild,” analysts argue.
Morgan Stanley: Three threats to the bull market on the stock exchange
Despite the commercial wars and other shocks, the American stock market showed extraordinary immunity this year – The main S&P 500 index increased by over 10%. However, Morgan Stanley analysts see three factors that can stop this rally.
First of all – slowing the labor market. The July report in the labor market fueled fears that his previous strength was only a mixture. “We think that the observed trend, if not a specific level, is confirmed by a wider data mosaic,” write analysts. “According to the Jolts survey of the work statistics office, the number of free vacancies has fallen to 7.44 million at the end of June, which means a poor relationship of free jobs to job seekers, of approximately 1: 1”.
Secondly – company results. Although 80% of companies have so far exceeded the expectations of analysts, a closer analysis reveals disturbing signals. “Only three of the eleven main stock market sectors – information technologies, communication services and the financial sector,” they recorded double -digit increases, “the analysts note. The profits of the magnificent seven grow by 28% year on year, while the remaining 493 companies from the index either record a slight increase, or do not grow at all compared to the same period last year. “Is the economy really strong if the profits of most of the largest listed companies barely keep up with the nominal GDP growth?” – they ask rhetorically.
Thirdly – the risk of inflation and staglation. Although the economy seems to be in good condition now, the threat has not disappeared. “This could be a case of deferred, not averted pain, because the latest reports of retaliation raised tariffs from the level of about 10% to nearly 18%” – sums up the analysts.
Source: Verslo Žinios
