Jefferies says US stocks can rally even if Fed doesn’t cut rates
inflation print need not to worry, according to Jefferies’ David Zervos, who says risk assets can thrive with or without interest rate cuts by the Federal Reserve.
The S&P 500 Index dropped more than 1% Wednesday after the latest consumer price index topped economists’ forecasts, renewing concerns that the Fed will delay any cuts. The technology-heavy Nasdaq 100 Stock Index slumped 1.2% as Treasury yields soared to a fresh year-to-date high near 4.5%.
However, US equities are likely to continue their uptrend based on good economic news, which Zervos, the bank’s chief market strategist, expects to swamp discussions about keeping rates higher for longer.
Continued strength in US economic data and signals from the Fed that there’s no rush to ease monetary policy have prompted investors to recalibrate their expectations for the timing and frequency of interest rate cuts. After Wednesday’s inflation reading, traders are now signaling that they anticipate policymakers dialing back rates just twice this year starting in September.
Zervos said market expectations at the start of 2024 for six cuts by December was “almost as silly” as pricing in two cuts at the start of last year.
While he sees hefty cuts as wishful thinking, he also argues that policy is still less restrictive than traditional measures. He points to the Fed’s balance sheet as a sign “the stimulative vestiges of quantitative easing are still with us.”
“The market has been predicting doom on the economy because of high rate levels for a very long time,”
