As the Federal Reserve continues to slash interest rates, a majority of investors are betting on US stocks to outshine government and corporate bonds for the remainder of the year. According to a recent survey, 60% of respondents expect US equities to deliver the strongest returns in the fourth quarter, with emerging markets favored over developed ones by 59% of those polled.
This optimistic outlook is fueled by the Fed’s recent half-point rate cut and China’s massive stock rally following the government’s economic stimulus package. Yung-Yu Ma, chief investment officer at BMO Wealth Management, notes that high short-term interest rates have been the biggest hurdle for the US economy, and with rates now on the decline, risk assets like US equities are becoming increasingly attractive.
The survey also reveals that investors expect the Fed to continue cutting rates, with 59% predicting quarter-point reductions at the next two meetings and 34% anticipating more aggressive easing. This dovetails with market expectations, which are pricing in around three-quarters of a point of cuts by year-end.
As a result, investor confidence in the Fed’s ability to engineer a soft landing has grown, putting the S&P 500 Index on track to gain in September for the first time since 2019. Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management, notes that the Fed has ample room to cut rates, setting up a positive backdrop for the US economy.
Meanwhile, investors are shying away from traditional safe-haven assets like Treasuries, with 29% citing buying Treasuries as the trade to avoid for the rest of the year. Crude oil is also out of favor, with 36% of respondents advising against buying oil due to concerns about oversupply next year. The US dollar is also losing its appeal, with 80% of respondents expecting it to end the year either flat or down more than 1%.
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