As the world's best-known "Fed interest rate reduction enthusiast", Trump once famously said that if the Fed knew what to do, the Dow would be 5000-10,000 points higher than it is now.

The logic of "Fed interest rate cut-US stocks rise" looks fine on the surface, but UBS analyst Fran ç ois Trahan pointed out in a report released on Tuesday that historical data show that when corporate profits are reversed, the Fed's interest rate cuts will not lead to the expected rise in US stocks.

UBS: profitability is the key, expecting interest rate cuts or fundamental mistakes

Trahan pointed out that the current "fanatical expectation" of investors for the Fed to cut interest rates is a very typical "irrational consensus". For investors who have been investing for a long time, they should recall that the same frenzy was staged briefly in 2001 and 2007.

But it is clear that investors failed on both occasions. Trahan says this kind of "interest rate cut" must have been true in the 1990s, but it has been difficult to hold up in the past 20 years. One of the simplest manifestations is that valuations such as PE start to contract after a brief expansion as leading indicators weaken.

At the same time, the problem can be seen more clearly from the perspective of earnings growth in the S & P 500.

Trahan said that this phenomenon is particularly prominent in the upcoming reporting season. In 2001 and 2007, the so-called "Fed sell" did not appear as expected, just because the earnings growth of the S & P 500 fell to 0%.

Generally speaking, the so-called "Fed selling" means that investors often fantasize that the Fed will adopt stimulus policies to push up asset prices when the economy is in the doldrums.

Another potential problem for now is that earnings growth of US listed companies is slowing faster than the recession reflected by economic indicators. Although this is directly related to a series of recent external events, this phenomenon has been interpreted by Wall Street as an increase in the base caused by 2018 US tax cuts.

Earnings growth for the S & P 500 will fall 2.6 per cent year-on-year in the second quarter of 2019, according to FaceSet.

KrishnaMemani, vice president of investment at Invesco, also said on Tuesday that investors who expected the Fed to cut interest rates to stimulate the stock market may have been wrong in the first place.

Memani believes that the Fed's current expectations of a gradual rate hike last year to a rate cut at the end of this month reflect fear of raising interest rates over the past three years or pushing the US economy to the brink.

Memani argues that the Fed only made some "cautious efforts" before dragging the economy into the abyss, andThe Fed is expected to "phase out" past rate increases in a cautious and structured manner. With economic growth bottoming out in the second quarter of this year, the US economy is expected to get back on the road in the second half of this year, bringing the annualised growth rate back to more than 2 per cent.

Goldman Sachs Group's Theory of the futility of interest rate reduction

Coincidentally, Goldman Sachs Group's analysts have recently released a report that holds a similar view.

In a recent research report, Jan Hatzius, chief economist of Goldman Sachs Group, raised a clear question: "Why cut interest rates?He listed a series of economic fundamentals and pointed out that it would be unreasonable for Powell to announce at a meeting at the end of this month that the US central bank would start the easing process.

Here are some of the key points of Hatzius's analysis:

• There is no reliable evidence that the labour market situation may deteriorate rapidly.After the 224000 increase in non-farm payrolls in June, the average for both the last three months and the last six months has returned to more than 170000, which is 50, 000 lower than in 2018 but still 70, 000 higher than the flat line that keeps the unemployment rate stable.

• Despite signs of a rapid slowdown in various manufacturing surveys, Goldman Sachs Group still believes that "this current weakness is mainly due to continued inventory adjustment, which may reduce GDP growth by 1.7% in the second quarter." Hatzius' report added, "We are now probably nearing the end of the inventory adjustment process, as inventory investment seems to have fallen below the trend line. The inventory / sales ratio across the economy is also roughly peaking. All in all, "these phenomena generally occur on the eve of an imminent rebound in orders and employment, and that day will not come for long."

• Us consumer spending has reached a rare level of strength.According to Goldman Sachs Group's analysis, the outlook for final demand is encouraging. Private sector domestic final sales are likely to grow by about 3% in the second quarter, "and even after the second quarter, we remain relatively optimistic about negotiations. Because the loose financial environment means that the financial conditions index will continue to help drive economic growth, and by the end of 2019, the effect will be slightly higher than the 1% at the end of 2018.

• The inflation surface is far from reaching the point of recession.Although core inflation grew by only 1.6% year-on-year, well below the Fed's 2% target, Powell attributed the weakness to a "temporary phenomenon" at the FOMC news conference on May 1. and stressed the stability of the Dallas Fed truncated average index of 2%. In Goldman Sachs Group's view, this is closer to the truth: "in fact, both the core consumer expenditure price index and the truncated average consumer expenditure price index maintained the same level as the same period last year two months ago. Since then, it has risen by more than 2%. "

• International trade tensions have cooled.Although some of the Fed's most dovish statements over the past few weeks have highlighted economic variables, especially trade problems, as a key reason for potential interest rate cuts, in fact, although the trade situation cannot be said to have calmed down, the parties concerned have resumed negotiations and communication, and the situation has cooled, at least in the near term.

As a result, one of the most critical questions is about to emerge--If neither the US domestic economy nor the global economy is a reason for the Fed to cut interest rates, what other role can be done? In Goldman Sachs Group's view, the answer is very simple, this is the market.

In other words, despite recent encouraging news in terms of employment, growth, inflation and trade, "even after Friday's sell-off, bond market prices still reflect the prospect of a combined 50 basis point rate cut in the next two meetings. Whether this market is' justified'or not in terms of fundamentals, it is likely to have an impact on the outlook for monetary policy in the near term, as it raises the cost of doing nothing.

The market digested this scale of policy easing ahead of time, essentially forcing the Fed into a dilemma. According to Goldman Sachs Group's estimation of the interaction between monetary policy shocks and changes in the financial environment, if the Fed fails to cut interest rates by 50 basis points as the market wants, then through the combined effect of a series of factors, such as higher bond yields, falling stock prices, increased credit spreads and a stronger dollar, the financial conditions index will contract by 50 basis points accordingly. In short, if the Fed does not cut interest rates, the market will create huge trouble, forcing them to cut interest rates to avoid a crash.

Not to mention, if the Fed surprisingly did not cut interest rates, causing stock prices to fall, it would surely prompt Trump to launch a new round of shelling at them. In addition, market participants will be even more unhappy with the Fed, which has more than once surprised, elusive and predictable since it was "a long way from the neutral zone" in October. Fed officials may feel that such criticism is unfair, but at the very least, such pressure will allow them to avoid another policy shock to the market as much as possible. As a result, cutting interest rates by 25 points each in July and September remains the most likely prospect.

The bigger challenge is the expectation of a longer-term policy outlook, that is, the market is already digesting the prospect of a rate cut in 2020, which the Fed may not plan to do. Goldman Sachs Group points out that if their forecasts for unemployment falling again and the core consumer spending price index rising by more than 2 per cent are accurate, "Fed officials may officially begin to reverse the recent process of interest rate cuts, just as they did in 1995-1996 and 1998".

In other words, in Hatzus' view,Although the Fed is unlikely to raise interest rates in the best part of the 2020 presidential election, in the medium term, the federal funds rate will rebound to a range of 2.5% to 3%.