美国经济衰退担忧依旧是笼罩在美股市场上的一片愁云，三重因素的压制使得整个金融市场调整明显："Black Monday" once again hit the US stock market , the Dow and S&P suffered their worst day in nearly two years on Monday, both marking the largest single-day decline since September 2022.
Global capital markets have experienced severe volatility due to recent events such as an unexpected interest rate hike by the Bank of Japan and rapid deterioration of non-farm data in the United States. As of Monday's close, the technology-focused NASDAQ index in the United States has fallen nearly 8% since August, while the S&P 500 index has fallen more than 6%. Product structure, 10-30 billion yuan products operating income of 401/1288/60 million yuan respectively.
Under multiple impacts, uncertainty in the U.S. stock market is intensifying, and the market is increasingly worried that the Fed's interest rate cuts are too slow. The previous expectation of a 25 basis point cut in the September meeting by the Fed has been quickly abandoned, with the market betting on more aggressive rate cuts.
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The U.S. economic recession remains a major concern for the stock market, and the combination of three factors has led to significant adjustments in the entire financial market:
1. The Bank of Japan raised interest rates by more than expected, and yen-carry trades have reversed;
2. A series of economic data fell far short of expectations, raising concerns about a recession in the market;
3. Large U.S. technology companies' earnings reports showed continued high growth in AI capital expenditures, but some companies' profit growth was lower than expected, raising questions about the subsequent breakthroughs and commercialization of AI technology.
Against this backdrop, U.S. stock market sentiment is highly tense, and any slight fluctuation will disturb the market. On Monday, in the midst of investor panic, Austan Goolsbee, president of the Chicago Fed, and Mary Daly, president of the San Francisco Fed, came out one after another to calm the market.
Goolsbee emphasized that the July non-farm employment report was only "one set of data," weak employment data was below expectations, but not a recession. He said the Fed would respond to signs of economic weakness and hinted that current interest rates may be too tight. When asked whether the weakness in the labor market and manufacturing will prompt the Fed to take responsive action, Goolsbee did not promise a specific action plan.
The Fed did not respond to a set of economic data, but kept its options open on monetary policy actions. Because we can get more information before the next meeting. But if our economy is not overheating, we should not actually tighten or restrict it.
Mary Daly, also a voting member this year, said she was open to rate cuts at the upcoming September meeting. The labor market is quite stable, and there are no signs of labor market weakness turning into a recession.
Daly said progress on inflation and clearly slowing hiring could push the Fed to ease policy to some extent. In addition, Daly also commented on recent weak economic data, saying that the sharp rise in the July unemployment rate was largely due to temporary layoffs and an excess of workers in economic activity, especially an increase in immigrants, rather than widespread permanent layoffs.
The bet on a rate cut continues to heat up, with the market even pricing in an "emergency rate cut."
After last week's rate decision, the next meeting of the Federal Open Market Committee is scheduled for September 17-18. There will also be an "Fed annual meeting" at the end of August, when central bank governors from many countries who are deeply affected by Fed policy will also be present to "discuss policy" with Powell.
The market generally expects the Fed to cut rates significantly from September, and just a week ago, it was widely expected that the Fed would cut rates by 25 basis points at the next meeting. According to CME's Fed observation tool, the likelihood of a 50 basis point cut in September is 74.5%, and the market has fully priced in the possibility of a 50 basis point cut in September.
Following market trends and sentiment, major banks have also raised expectations for a rate cut:
Goldman Sachs: increased the expectation for the Federal Reserve to cut interest rates 25 basis points to three times, and did not rule out the possibility of a 50 basis point rate cut in September.
CitiBank: the Federal Reserve will cut interest rates by 50/50/25 basis points in September, November, and December, respectively, all previously expected to be cut by 25 basis points.
Barclays: added a third interest rate cut in their prediction for the Federal Reserve's decision this year, with a magnitude of 25 basis points.
Bank of America: expected the Federal Reserve to cut interest rates by 25 basis points in September, while the previous expectation was December.
JPMorgan: predicted that the Federal Reserve will cut interest rates by 50 basis points in September and November, and 25 basis points at every meeting thereafter.
Morgan Stanley: predicts that the Federal Reserve will cut interest rates by a cumulative 75 basis points within 2024, in three phases, each time by 25 basis points.
How to cut and how much to cut is still a hotly debated topic in the market. In the worst case, the market is even beginning to simulate emergency rate cuts.
JP Morgan economists have changed their views on the Federal Reserve's forecasting, and expect a 50 basis point interest rate cut at the September and November policy meetings. They also believe that the Federal Reserve has a "compelling reason" to take action before the scheduled policy announcement on September 18.
Nobel laureate Paul Krugman has also called for an urgent rate cut after panic selling in the stock market. In addition, Jeremy Siegel, a professor at the Wharton School, said on television on Monday that the Fed should quickly cut 75 basis points after Friday's employment report, and then cut 75 basis points again at the September meeting. He said the federal funds rate should be around 3.5%-4% now.
Taking a lesson from history, the last emergency rate cut was in March 2020, when the rate decision meeting was originally scheduled for the 20th, but after several days of consecutive decline, the Fed made two consecutive emergency rate cuts on March 3 and 15, and launched a large-scale quantitative easing policy.
In addition, the Fed has also made emergency rate cuts at the following important times:
October 1998: The Fed, which had just started a cycle of rate cuts a few weeks earlier, made an emergency rate cut to prevent the bankruptcy of large hedge fund Long-Term Capital Management (LTCM) from causing a market collapse.
January 2001: As technology stocks performed poorly for months, coupled with continuously worsening economic data, the Fed unexpectedly lowered interest rates by 50 basis points that month.
In January 2008, the Fed had previously reduced interest rates by 100 basis points in the autumn of 2007. However, due to the rapid deterioration of the economy and the huge trading losses of the Industrial Bank of France, the Fed once again urgently lowered interest rates by 75 basis points in January 2008 (one week before the scheduled policy meeting).
Looking back at the performance of the S&P 500 stock price during each emergency rate cut in history, although it is highly likely that the US stock market will show an upward trend on the day of and one month after the rate cut, during the early outbreak of the new crown epidemic, the Fed lowered its borrowing cost by 50 basis points to 1%-1.25% during a meeting interval. However, the stock market still plummeted that day and continued to fall more than 17% one month later. Whether the emergency rate cut can provide a strong boost to the stock market remains to be tested by the market.
It is worth noting that many opinions currently do not agree with over-betting on rate cuts.
Nomura Securities economist Andrzej Szczepaniak said that the US economy is still growing strongly, and the second quarter GDP growth rate exceeded expectations, household consumption remains healthy, and there is no sign of substantial slowdown. He believes that the current bet on rate cuts by the Fed has been overly magnified.
Nick Timiraos, a well-known journalist known as the "new Fed communication agency," also expressed a similar view. He said that cutting interest rates during the scheduled policy meeting interval would be very unusual. Generally speaking, only in cases where market functions deteriorate significantly—far beyond the stock market crash—will the Fed take emergency rate cuts.
Timiraos mentioned the recent views of Steven Blitz, chief US economist at GlobalData TS Lombard. Blitz believes that the threshold for an emergency rate cut during the meeting interval is really high. I think Fed officials would be more willing to say, 'If things continue to develop, there is a possibility of a 50 basis point rate cut in September.'
Mooers,
Do you think the US stock market may face an emergency rate cut?
What 'rate cut trade' strategies would you choose?
Let's discuss in the comments section!
