As Federal Reserve officials frequently “fly eagles” and once again bombard the market with the “bubble theory” of US stocks, many Wall Street bosses have expressed that they are not optimistic about this year's interest rate cut trend and stock market prospects.
However, Capital Economics (Capital Economics) doesn't seem to approve it. According to data from the well-known research firm, the rebound in the US stock market will not end, the S&P 500 index will continue to soar until at least 2026, and the Fed will cut interest rates far beyond expectations.
The company's economists predict that by the end of 2025, the S&P 500 will soar to 6,500 points, about 25% higher than the current level. This is probably the most optimistic Wall Street agency currently.
This is contrary to the views of “pessimists.” Some market experts have warned that now, driven by the artificial intelligence (AI) boom, the “boom” in US stocks looks like a huge bubble and is about to burst, and the stock market is about to recover. Albert Edwards (Albert Edwards), a global strategist at Société Générale, claims that US stocks are reflecting a historic bubble, and a collapse may be imminent.
Jeffrey Gundlach (Jeffrey Gundlach), CEO of Dual Tier Capital and the “New Debt King,” warned that the crazy stock market under the AI wave reminded him of an internet bubble and predicted stubborn inflation and economic recession in the future.
Gunlak said that the current market is driven by “greed,” and said that he will only invest in an equal weight index; he is “not interested in owning the 'Big Seven in Technology'.” He said, “It feels a lot like 1999. The Nasdaq soared 80% in the fourth quarter of 1999, but fell 85% from its peak 12 months later.”
However, Kaitou Macro pointed out that the US stock market doesn't seem to be as overvalued as in previous periods. Schiller's “excess cyclical price-earnings ratio yield” (Excess CAPE Yield, ECY for short) of the S&P 500 index — reflects the valuation of stocks compared to bonds, still not at the level of 1929 and the Internet bubble period, which indicates that the stock market may still “rise sharply.”
“We expect that as the stock market bubble continues to expand, 'risky' assets, especially stocks, will continue to outperform 'safe' assets in the next few years.” The company wrote in its latest report.
Interest rate cuts may exceed expectations
Meanwhile, the company said it is expected that the Federal Reserve will cut interest rates soon, and that the rate cut may be much larger than expected by the market. The company estimates that the Federal Reserve may cut interest rates for the first time in June and eventually cut interest rates by 200 basis points before mid-2025, which is larger than expected by the market.
“Due to the good economic momentum, they are also likely to stand still until July. Despite this, we still expect interest rate cuts to be larger than what investors expected.” According to the report.
This is not very consistent with recent statements made by Federal Reserve officials. This week, many senior officials have been intensively hawking and saying that they are not considering cutting interest rates for the time being. US Dallas Federal Reserve Chairman Logan said on Friday that “it is still too early to consider cutting interest rates”; Governor Bowman reiterated that now is “not yet” the time to reduce borrowing costs.
Atlanta Federal Reserve Chairman Bostic has repeatedly emphasized recently that he expects to cut interest rates only once in the fourth quarter of this year. Minneapolis Federal Reserve Chairman Kashkari said that if inflation stops cooling and the economy remains strong, there may be no need to cut interest rates. Meanwhile, the CME Federal Reserve's observation tool shows that the probability of the Fed's “first drop in June” has dropped sharply to 46.1%.
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