Investing.com – Recently exuberant equity markets could turn more cautious should the Federal Reserve restart policy easing as expected this week, according to analysts at JPMorgan Chase.<\/p>\n
Investors appear to be using the potential borrowing cost reductions as a reason to “look through” a recent crop of soft U.S. labor market data, the analysts noted. The major U.S. indices have been hovering around record highs, with the tech-heavy Nasdaq Composite in particular notching a new all-time closing high on Friday.<\/p>\n
“But the risk is that this changes,” they wrote. “Once the easing resumes, equities could turn more cautious for a bit, and price in some more downside risk, in effect repricing the current, potentially complacent, stance.”<\/p>\n
In a note to clients, the analysts led by Mislav Matejka flagged that overall indices have historically tended to consolidate when the U.S. central bank resumes a cycle of rate cuts, adding that stocks then “stall[ed] for a few months, and would advance therafter.”<\/p>\n
Traders are now all but certain that the central bank will slash interest rates at the end of its latest two-day gathering on Wednesday.<\/p>\n
Underpinned by the signs of a weakening U.S. labor market, policymakers are widely anticipated to back the first rate cut since pausing a cycle of drawdowns in December. Lowering rates can, in theory, help spur investment and hiring.<\/p>\n
However, a reduction can risk pushing up inflationary pressures at the same time. Last week, a monthly U.S. consumer price index reading accelerated slightly due to an uptick in housing and food costs, a potential indication of sticky inflation.<\/p>\n
Yet a separate gauge displaying a rise in weekly initial jobless claims likely kept a Fed rate cut on track. There is now a roughly 95% probability that borrowing costs are lowered by 25 basis points, as well as about a 5% chance of a deeper half-point drawdown, according to CME\u2019s FedWatch Tool. The Fed\u2019s target rate currently stands at a range of 4.25% to 4.5%.<\/p>\n
Against this backdrop, the JPMorgan analysts stood behind their “bullish view” on emerging market stocks, calling them “underowned” and trading at “attractive” valuations. The “worst” of trade-related uncertainty has also now passed, they added.<\/p>\n
On a sector level, the analysts highlighted mining equities as a segment that will “perform better” thanks in part to a “stronger outlook” in China.<\/p>\n
They also reiterated their backing for long-duration government bonds and suggested that a July-to-August stabilization in the U.S. dollar “might not last.” The dollar index, which tracks the greenback against a basket of rival currencies, is projected to slide 4%-5% over the next six months.<\/p>\n","protected":false},"excerpt":{"rendered":"Investing.com – Recently exuberant equity markets could turn more cautious should the Federal Reserve restart policy easing as…\n","protected":false},"author":2,"featured_media":3020,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[5],"tags":[17105,114,4318,85,46,9307,1008],"class_list":["post-17445","post","type-post","status-publish","format-standard","has-post-thumbnail","category-business","tag-analysts","tag-business","tag-federal-reserve","tag-il","tag-israel","tag-jpmorgan-chase","tag-nasdaq-composite"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/17445","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/comments?post=17445"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/posts\/17445\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media\/3020"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/media?parent=17445"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/categories?post=17445"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/il\/wp-json\/wp\/v2\/tags?post=17445"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}