Caixin Media News on September 21 (Edited by Huang Junzhi): With the Federal Reserve finally cutting interest rates by 50 basis points this Wednesday and starting a loose monetary policy, the market generally believes that the stage has been set for further rebound in the US stock market. However, Bank of America does not seem to fully agree.

Bank of America strategist Michael Hartnett said that while this sounds like good news for investors, with the arrival of a new round of loose monetary policy by the Federal Reserve, the risk of bubbles has reappeared in some markets.

After the Federal Reserve cut interest rates by 50 basis points, US stocks started a "rally" on Thursday: all three major indices collectively rose, with the S&P 500 index and the Dow also hitting new historical highs. Despite the influence of "Triple Witching Day" on Friday, the three major indices showed mixed movements, but the Dow once again reached a new historical high.

In a report released later on Wednesday, Bank of America Global Research company predicted that the Federal Reserve will cut interest rates by 75 basis points in Q4, while the previous estimate was that the Fed would cut rates by 25 basis points at the November and December meetings.

In addition, the bank also believes that by 2025, the Federal Reserve may cut rates by another 125 basis points, reducing the target rate from the current federal funds target range of 4.75% to 5.00% to a range of 2.75% to 3.00%. Bank of America economists believe that after further substantial rate cuts, the Fed will be forced to cut rates further.

According to the general market view, by the end of 2025, this will help drive an 18% increase in earnings for Standard & Poor's 500 index component companies. Hartnett said that this growth "will not be much better than risks".

He also added, "There is no better combination for risky assets, so investors will be forced to chase the rebound". He suggested buying when bonds and gold decline, considering the return of bubble risks.

He had previously warned that with the soaring investment in artificial intelligence, a technology bubble may emerge. In February this year, Hartnett stated that the "infant bubble" in the field of artificial intelligence is "growing", and if monetary policy is relaxed, it may push the market higher.

Now, that moment has arrived. In the latest report, Hartnett recommends that the best way to allocate investment portfolios in the context of further expansion of investments in artificial intelligence and loose policies is to allocate bonds and gold to hedge against growth and inflation risks.

"Buying bonds and gold on the rebound of risks, as the 'tail' of recession and inflation accelerating again is too unpopular." He wrote.

Finally, the strategist also mentioned that investing in stocks and commodities outside the US is a good way to trade around the theme of an economic "soft landing", the latter being an inflation hedge tool. This is because Hartnett believes that international stocks are cheaper and are starting to outperform their US counterparts.

Editor / jayden