BofA says investors are confident the Fed will cut interest rates amid signs of economic recovery.

BofA says investors are confident the Fed will cut interest rates amid signs of economic recovery, with some anticipating a sharp 0.50% cut, while bond spreads hit a 30-year low.

On September 12, 2568, at 15.05:XNUMX a.m., Bloomberg News reported that Michael Hartnett, strategist at Bank of America (BofA) specify that Financial markets remain confident that the Federal Reserve (Fed) will be ahead of the curve when it starts cutting interest rates.

He added that the rise in banking stocks, interest-sensitive stocks, and the decline in investment-grade corporate bond spreads reflect investors' belief that the Fed can reliably cut interest rates, and that the cuts are coming amid the US economic recovery.

Meanwhile, US stocks soared to record highs on expectations the Fed will cut interest rates by at least 0.25% at its meeting next week. The KBW Bank Index rose for a fifth straight month, while the small-cap Russell 5 outperformed the S&P 2000 for the second straight month. Investment-grade corporate bond spreads remained at just 500%, near a more than 0.75-year low, while many Wall Street strategists also raised their positive outlook on US stocks on strong corporate earnings and the growth trend of AI.

However, recent labor market weakness has some concerned that the Fed may be delaying interest rate cuts too long, with President Donald Trump continuing to pressure the Fed to cut rates faster, with some investors even anticipating a sharp 0.50 basis point cut at this meeting.

Hartnett warned that if the KBW Bank Index falls more than 8%, small-cap stocks decline and credit spreads widen, it would be a sign that the Fed is behind and is cutting interest rates amid a slowing economy.

He continued to advise investors to diversify their investments into international equities rather than US stocks, a recommendation that has proven correct, as the MSCI ACWI ex-US index has outperformed the S&P 500 since the beginning of the year.

refer : bloomberg.com

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