Source: Caixin.
Author: Liu Rui.
David Kelly, Chief Global Strategist of JP Morgan Asset Management believes that despite the latest non-farm data showing that the US economy is gradually slowing down, the Federal Reserve is expected to cut interest rates twice in 2024.
But he is not optimistic about US stocks, as they may face significant risks of a sharp correction due to the extremely high stock prices.
On Friday, eastern time, the US announced the latest non-farm employment report, further boosting the market's expectation of a rate cut by the Federal Reserve. The S&P 500 and Nasdaq also reached a new high in closing under this boost.
However, David Kelly, Chief Global Strategist of JP Morgan Asset Management, believes that despite the latest non-farm data showing that the US economy is gradually slowing down, the Federal Reserve is expected to cut interest rates twice in 2024. But he is not optimistic about US stocks, as they may face significant risks of a sharp correction due to the extremely high stock prices.
Non-farm cooling boosts expectation of interest rate cut.
Data released by the US Bureau of Statistics showed that seasonally adjusted non-farm employment increased by 0.206 million in June, higher than the market's expected 0.19 million, but the data for the previous two months was revised down sharply, and the unemployment rate further increased to 4.1%.
CME's Fed Rate Watch showed that after the June non-farm data was released, investors raised their bets on a rate cut in September, with the probability of a 25-basis-point cut in September rising from about 64% a week ago to around 77%.
Kelly of JP Morgan also expects the Fed to cut interest rates for the first time in this cycle at its September policy meeting and possibly again in December.
He added that this is due to the slowdown in the US economy, especially as the US unemployment rate has risen to its highest level in nearly three years at 4.1%.
But Kelly said a rate cut should not be a signal for investors to flock to the stock market. He pointed out the problem of overvaluation in US stocks: the S&P 500 index has risen by 17% this year and has repeatedly set historical records.
"This is a time when we have to be very careful because valuations are very high. We experienced a huge rebound last year and this year."
US stocks face the threat of a correction.
This year's surge in US stocks is partly due to the market's fervent anticipation of a rate cut by the Federal Reserve, as well as persistent excitement about artificial intelligence technology. Against this backdrop, large-cap US technology stocks have soared, contributing most of the gains to benchmark indices.
Kelly said, "Overall, the market is at a high point, and sooner or later we will experience a major adjustment. My understanding of the previous adjustments is that when you are in the midst of an adjustment, you don't want to hold the most expensive things."
"In a sense, the US economy is creating a market bubble. We have seen stock prices rise continuously. I think people now need to invest very carefully and not over-invest in the most expensive stocks," he added.
In fact, Kelly is not the only bear on Wall Street.
Legendary Wall Street investor John Hussman recently said that according to some measures, the S&P 500 index seems to be the most severely overvalued since just before the stock market crash of 1929. Hussman even said that a 70% drop in the US stock market would not be surprising.
Editor/Jeffy