According to the latest survey of Bloomberg terminal users obtained by the Wise Finance APP, as the Federal Reserve took its first rate cut since 2020, the market generally believes that there is an increased possibility of the United States economy achieving a soft landing, and it is expected that the U.S. stock market will present an upward trend for the rest of the year.

As of the publication, the Nasdaq futures rose by 1.65%, the S&P 500 futures rose by over 1%, and the Dow futures rose by 0.64%.

However, despite this, the market's expectations for the stock market's rise are relatively conservative. In the recent Markets Live Pulse survey, 173 respondents participated, with 44% of them expecting the S&P 500 index to rise by no more than 6% compared to Wednesday's closing price, while 19% of respondents even expected the index to fall. Only 37% of respondents believe that the index's increase will exceed 6%.

Most respondents expect the economy to achieve a soft landing, with 75% predicting that the economy will avoid entering a technical recession by the end of next year. The expected 6% increase is roughly in line with the year-to-date performance of the S&P 500 index so far.

After the Federal Reserve's rate cut, the stock and bond markets experienced a decline. Federal Reserve Chairman Jerome Powell warned the market not to expect continued large rate cuts and hinted that borrowing costs may need to remain above pre-pandemic levels for a long time. This caused the S&P 500 index to give back a 1% gain. Despite Powell's optimistic outlook on avoiding an economic recession, there was still a sell-off in the U.S. bond market.

The cautious attitude towards future stock market gains reflects the market's uncertainty about the Federal Reserve's policy path and economic outlook. Since July, the stock market has been volatile, with a significant drop in early August followed by another decline at the beginning of this month, then some recovery. Investors are skeptical about whether the AI boom can continue to drive profit growth. A survey shows that 57% of respondents expect value stocks to outperform the large cap in the future, while 43% believe that AI will make a strong comeback and become the dominant force in the market.

Survey participants tend to agree with Powell's assessment of the economic health, with 49% viewing it as a good time to increase shareholding. 31% lean towards buying bonds, while the remaining 20% consider holding cash or gold to be a better choice. The price of gold fell by 0.4%, erasing the record gains made earlier this year.

The Federal Reserve's first rate cut also provided investors with the opportunity to focus on other potential factors that could impact high-risk assets, including the increasingly tense situation in the Middle East and the upcoming U.S. elections on November 5th. Around 58% of respondents expect that if Donald Trump returns to the White House, the Fed's interest rates will rise by the end of 2025; while the remaining 42% believe that if Vice President Kamala Harris wins, benchmark rates will increase further.

Both candidates have proposed plans to increase spending, but neither has addressed concerns in the market about the possibility of federal government debt inflation leading down an unsustainable path.

The unexpected significant rate cut by the Federal Reserve has led the market to cautiously optimistic about the possibility of an economic soft landing.

Before the Federal Reserve announced the interest rate cut, Wall Street traders had already significantly increased the possibility of a half basis point rate cut, which exceeded the conventional quarter basis point rate cut. However, the actual interest rate cut decided by the Federal Reserve still surprised many analysts.

Simone Shah, Chief Global Strategist at Principal Asset Management, stated in a client report, "The Federal Reserve's large-scale interest rate cut decision is a rare move in history." She further stated, "The market has ample reason to cheer for today's rate cut, and the market may continue to celebrate in the coming months." She jokingly questioned, "Economic recession? What economic recession?"

Brian Colton, Chief Economist at Fitch Ratings, believes that this interest rate cut demonstrates the government's sudden focus on maximizing employment and shows great confidence in the progress of inflation over the past month and a half. Despite the seemingly stable job growth, the Federal Reserve may be more concerned about the state of the labor market than most people in the market.

Recently, economic data has continued to show complex and varied signals. The unemployment rate remains at a historically low level of 4.2%, but in the past five months, the unemployment rate has shown an upward trend, which usually signals an impending economic recession. Despite the low layoff rate, recruitment activity has almost stagnated, especially in some white-collar industries, making the job search path exceptionally difficult for many.

The retail sales report released on Tuesday showed that while overall consumer spending in the United States remains stable, some discretionary spending categories such as dining are showing signs of weakness.

The Federal Reserve uses the federal funds rate as its primary tool to control inflation and unemployment. Higher interest rates are used to suppress price increases, while lower interest rates are intended to stimulate demand and promote employment. In response to the rapid rise in inflation during the COVID-19 pandemic, the Federal Reserve began raising interest rates significantly in 2022.

Although according to the signals from the Federal Reserve in the past few weeks, interest rate cuts are almost inevitable, there is still no clear expectation in the market on whether the Federal Reserve will choose to cut interest rates by 25 basis points or 50 basis points until the last moment. Some analysts believe that a 50 basis point rate cut is a necessary measure to prevent an economic recession, while others believe that such a rate cut would be unexpected and imply that the market has overlooked the weakness of the economy.

Before the Federal Reserve's statement was released on Wednesday, Bank of America economists stated in a report that although there is reason for the Federal Reserve to cut interest rates by 50 basis points based on weak data, the "baseline scenario" is that the economy will experience a "soft landing" with relatively low unemployment and inflation rates, although the market remains concerned about the possibility of the economy continuing to deteriorate.

They wrote, "Despite the downside risks, the main message of the meeting should be cautious optimism."

Others believe that the future timetable for further interest rate cuts by the Federal Reserve will be more important than the rate cut announced on Wednesday. The Federal Reserve typically prefers to cut interest rates gradually, usually by 0.25%, unless faced with an emergency. However, most market participants believe that based on the current economic conditions, the Federal Reserve will need to cut interest rates by at least 1.5% over the next four meetings.

Jay Bryson, Chief Economist at Wells Fargo & Co., believes that there is about a one-third chance of an economic recession, based on rising delinquency rates and savings rates, which indicate that consumers are spending faster than they can keep up with inflation.

He stated, "We see some cracks in the economy."

The Federal Reserve believes that the rate cut on Wednesday and other potential rate cuts in the coming months should provide a buffer for further economic deterioration. However, it is unclear how quickly consumers and businesses will be able to take advantage of lower rates if they feel that overall economic demand is declining.

Some economists say that there is currently no evidence of such signs.

Goldman Sachs' chief economist, David Mericle, said in a client report: "The number of layoffs is still low, job openings are still high, GDP is growing at a healthy pace, and there have been no major negative impacts."

But not everyone agrees with his view. Economists at Citigroup Financial Group believe that a more severe economic downturn is imminent. They point out that surveys show that since 2010, the proportion of small businesses expecting a decrease in income has been the highest, and recruitment is expected to remain sluggish. They also note that despite recent declines in mortgage rates, there has been no increase in home buying and construction activity, which they believe reflects weak demand.

Citigroup economists wrote: "Companies have slowed down hiring to reduce labor costs. As hiring slows down in general, the likelihood of workers leaving their current jobs will decrease, forcing companies to start actively laying off employees.

Editor/Emily