After seven consecutive times in which the American central bank left the interest rate unchanged, last night (Wed), at 21:00 Israel time, the Fed decided to cut the interest rate in the US by a sharp rate of 0.5% to 5%. This is the first interest rate cut since March 2020.
Despite the good news, Wall Street closed last night with slight price drops of 0.3%, even after Powell emphasized at the press conference that “inflation is now very close to our target and we have been able to achieve high confidence that price increases are converging towards the target. The American economy is strong overall”.
However, it seems that investors this morning finally digested the sharp interest rate cut, whenThe futures are trading sharply higher at this time, and the Nasdaq jumps by about 1.7%.
“Investors are advised to hold leading American growth stocks”
Rinat Ashkenazi, the chief economist of Bafnix Investment House, estimates that as long as the data show that the Fed is successful in its mission, we can expect a bullish spirit for stocks, with an emphasis on channels that are more sensitive to the level of interest.
Ashkenazi expands that “the ‘traditional’ beneficiaries of the interest rate reduction during a soft landing in the US will be small-cap companies, ‘value’ stocks, cyclical sectors, or in other words, almost all those industries that lagged behind the technology giants and their profits are expected to improve in view of The financing discount. If the Fed and the markets are fooled and the recession still occurs, it can be assumed that the demand for defensive industries (basic consumption, infrastructure, medicine) will rise and it is also likely that the technology stars will again be in fashion (at least some of them are less sensitive to the business cycle).”
In the equity strategy research department at Julius Baer Bank, analyst Matthew Rachter wrote that “The interest rate cut cycles in the US since 1980 show that the S&P 500 index produced an average performance of 14.2% within 12 months of the first interest rate cut. When the download cycles are not accompanied by an economic recession, the reaction in the stock markets tends to be positive. However, market volatility is expected to remain high. Economists expect a 0.25% cut, and further reductions in November and December. The interest rate is expected to reach 4.75% by the end of 2024.”
Rachter further elaborates that in an analysis of historical data, interest rate cuts in the US that were not accompanied by an economic slowdown created a “super risk” environment, which led to increases in stocks. However, each cycle is different, and this time dealing with uncertainty regarding the US elections, fear An economic slowdown and seasonal factors are expected to increase volatility. Despite this, the experts predict that this volatility is part of a temporary correction in the current bullish market trend, and therefore investors are advised to hold leading American growth stocks, which continue to lead the bullish market.
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