Investors bet that the Fed is most likely to cut the federal funds rate by 25 basis points to the range of 2.00%~2.25% at the end of the two-day meeting on July 3 1. This is the first comprehensive interest rate easing cycle since the financial crisis began in September 2007, and it is not clear whether to cut interest rates in a limited way to prevent economic recession.
On the other hand, the second quarter GDP data of the United States released by * * was stronger than expected, which confirmed that a comprehensive easing policy might not be necessary. Therefore, the focus of the current market is how Powell describes the background of the Fed's interest rate cut. This uncertainty is affecting the global stock and bond markets.
The bond market is still sought after by funds.
As of the week of July 17, * * mutual funds and exchange-traded funds tracking bonds recorded an inflow of $ 12 1 billion, the 28th consecutive week. According to BankofAmericaMerrillLynch's analysis of global data, the total investment so far this year has reached $254 billion, and it is expected to reach a record $455 billion in 20 19. In contrast, the bonds that flowed into the United States in the past 10 year were $65,438 +0.7 trillion.
When there is uncertainty, many investors will invest their money in areas they think are safer. A survey of fund managers conducted by Bank of America Merrill Lynch earlier this month showed that the market made more US Treasury bonds for the second consecutive month, and a large number of market participants held these bonds.
Economic data are still mixed. FactSet data shows that the market's expectations for global economic growth are getting lower and lower, which prompted companies in the S&P 500 index to lower their expectations and reduce the expected profit growth rate this year from 3% at the end of March to 1.6%. However, a series of economic data recently released in the United States, such as employment, consumer spending and industrial production, show a certain growth momentum.
The American stock market hit a record high, and the enthusiasm of investors to turn to the bond market has also increased rapidly. Wood, global investment strategist at Bank of America Merrill Lynch, said that investors still believe that there will not be much room for economic growth, corporate profits or inflation. Investors are allocating funds to the least risky and most conservative areas in the fixed income market. One of the reasons is that in the past 10 years, enterprises helped to support the stock market through repurchase, which promoted the rise of asset prices to a certain extent, not entirely because of the improvement of corporate profitability.
Increased risk capital preference
Historical experience has proved that interest rate cuts are likely to be more beneficial to the stock market. In the past, the Federal Reserve began to cut interest rates five times outside the recession * * * including 1984, 1987, 1989, 1995 and 1998. The S&P 500 index rose * * in the next six months.
In any case, the S&P 500 index has a history of rising in the months after the beginning of the Fed's interest rate cut cycle, even in two small cycles in the mid-1990s. The S&P 500 index has risen more than 20% so far this year, partly due to the expectation of interest rate cuts, but a 25 basis point rate cut may not be enough to continue or even maintain the increase of 20 19. On the contrary, the market will judge whether Powell is willing to cut interest rates further based on his views on the economy.
There are still a lot of safe-haven funds flowing into the stock market. According to Bank of America Merrill Lynch, mutual funds and ETFs that track the US stock market have recorded capital outflows of $45.5 billion so far this year. The growing hope that the Fed will cut interest rates has prompted some investors to make riskier bets. Bank of America Merrill Lynch said that the "bleeding" of equity funds has stopped, and $22 billion has flowed into American equity funds in the past six weeks.
Interest rate cuts or preventive measures
It is worth noting that, by comparing the data of previous interest rate cuts, analysts found that compared with previous rounds of interest rate cuts, the macro data before this rate cut seems to be better. 60 1788 (Everbright Securities) analysts made a comparison from four dimensions: manufacturing, consumers, real estate and labor market, and found that the decline of manufacturing PMI in the six months before the interest rate cut was significantly better than that in the past five rounds.
The fundamentals are acceptable. Why cut interest rates? Analysts believe that this is related to the uncertainty caused by the global economic weakness and trade friction, and it is a "preventive" interest rate cut.
Analysts believe that this can be seen from the Fed's Beige Book. The Beige Book is a report regularly released by the Federal Reserve to track the regional economy. Prepared by 65,438+02 Regional Federal Reserve according to local conditions. Since 2065, 438+08, 65, 438+0, the number of words such as "tariff", "trade" and "uncertainty" in the Beige Book has obviously increased. Among them, the word "uncertainty" appeared 22 times in the Beige Book in July this year, the most in two years, indicating that the global economic weakness and the impact of tariff policy on American enterprises are still spreading, which is also an important reason for the Fed to cut interest rates.