① David Kelly, chief global strategist at J.P. Morgan Asset Management, believes that although the latest non-farm payrolls data shows a gradual slowdown in US economic growth, the Federal Reserve is expected to cut interest rates twice in 2024; ② He is not optimistic about US stocks because of this, because the extremely high stock prices of US stocks may face the risk of a sharp correction.
Financial Services Association, July 6 (Editor Liu Rui) On Friday EST, the US released the latest non-farm payrolls report, further boosting market expectations for the Fed to cut interest rates. The US stock S&P 500 index and the NASDAQ also hit new closing highs with this boost.
However, David Kelly (David Kelly), chief global strategist at J.P. Morgan Asset Management, believes that although the latest non-farm payrolls data shows a gradual slowdown in US economic growth and the Federal Reserve is expected to cut interest rates twice in 2024, he is not optimistic about US stocks because of this, because US stocks may face the risk of a sharp correction.
Non-agricultural cooling boosts expectations of interest rate cuts
On Friday EST, data released by the US Bureau of Statistics showed that after the June seasonal adjustment, the US non-farm payrolls increased by 0.206 million, higher than market expectations of 0.19 million. However, the data for the previous two months was drastically revised, and the unemployment rate rose further to 4.1%.
The CME (CME) Federal Reserve Interest Rate Observation Tool shows that after the June non-farm data was released, investors raised their bets on cutting interest rates in September, and the probability of cutting interest rates by 25 basis points in September increased from 64% a week ago to around 77%.
J.P. Morgan's Kelly also anticipates that the Federal Reserve will cut interest rates for the first time in the current cycle at the September policy meeting, and then may cut interest rates again in December.
He added that this is due to the cooling of the US economy. In particular, the US unemployment rate has risen to 4.1%, the highest level in nearly three years.
However, Kelly said that interest rate cuts should not be a signal for investors to flock to the stock market. He pointed out the problem that US stocks are overvalued: the S&P 500 index has risen 17% so far this year, and has broken historical records several times.
“This is a period where we have to be very careful because of the high valuations. We both experienced a huge backlash last year and this year.”
US stocks are threatened with a pullback
The sharp rise in US stocks this year is partly due to the market's fervent expectations of the Fed's interest rate cut and the market's continued excitement about artificial intelligence technology. In this context, large US technology stocks soared, which also contributed most of the increase to the benchmark index.
Kelly said, “Overall, the market is at a high level, and sooner or later we will experience a major adjustment. What I know about previous adjustments is that when you are in the midst of adjustments, you don't want to hold the most expensive things.”
“To some extent, the US economy is creating a market bubble. We've seen the stock price continue to rise. I think people now need to be very careful to diversify their investments and not overinvest in the most expensive stocks,” he added.
In fact, Kelly isn't the only pessimist on Wall Street.
Legendary Wall Street investor John Hussman (John Hussman) recently said that by some standards, the S&P 500 appears to be the most overvalued since before the 1929 stock market crash. Husman even said that the 70% drop in US stocks was not surprising.