On Wednesday, the stock and bond markets responded tepidly to the Federal Reserve's 50 basis point interest rate cut, but optimism reignited on Thursday. The three major U.S. stock indexes opened higher, with the S&P 500 index reaching a new intraday high.

Dario Perkins, Global Macro Director at TS Lombard, said he never doubted Federal Reserve Chairman Powell's ability. He sees the 50 basis point interest rate cut as more of a victory against inflation rather than a warning of an impending U.S. economic collapse.

"It is important to remember that the Federal Reserve's monetary policy in the past two years was carried out in a macro environment that is completely different from the current one - with inflation rates at decades-long highs and a severely imbalanced labor market. Policymakers feared a repeat of the 1970s. Given the complete reversal of all these trends, it is clear that Federal Reserve officials were able to demonstrate the rationale for a 50 basis point interest rate cut without causing market unease or excessive panic," he said.

He added that the United States no longer needs "emergency-level monetary tightening policy," which should be beneficial for risk assets.

Perkins said that for the economy and the markets, a script similar to 1995 is now playing out.

He said, "This is not only a textbook example of the 'soft landing' that the Fed is now hoping to achieve, but also a 're-calibration' of monetary policy in the medium term (rather than a complete reversal), that is, the central bank will lower interest rates to a neutral level after a deliberate restrictive policy for a period of time."

Perkins does not rule out the possibility of an economic recession, but says that, considering the absence of severe financial imbalances and the ongoing fiscal policy support, the economic recession will be mild. "We believe that investors underestimate the resilience of the U.S. economy, and even if there is a recession, it may be very mild by historical standards," he said.

In his view, the bond market is pricing in too much monetary easing. "We expect a long-term bond bear market, with yields reaching higher lows and higher highs in the 2020s, even if monetary policy deviates from this track in the short term," he said.

He remains optimistic about the stock market. Previously, he proposed his own economic recession indicator, creatively named the Perkins Rule, which indicates that the signal of an economic recession is the contraction of employment, rather than a gradual increase in the unemployment rate.

He said that investors should only sell stocks when the increase in employment turns negative. "Remember, you don't need to trade stocks by predicting a recession, you just need to recognize it once the recession process starts," he said. "Given investors' confidence in the Fed's put options, the stock market will always give you a chance to exit risky assets before it's too late."

Editor/Lambor