Source: Zhitong Finance "Since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%)." With the rebound of the stock market, the old adage "Sell in May and Go Away" seems to have been a bad advice once again. Last month, the S&P 500 index rose 4.8%, the best May performance since 2009. The NASDAQ 100 index rose nearly 6.2%, and the NASDAQ Composite Index rose 6.9%. Goldman Sachs FICC & Equities Trading Division said: "History doesn't really support this saying. Don't sell, leave the market (go on vacation), and enjoy the good times." The rising trend is still to be continued? If history is any guide, it may indicate that the rise of the stock market is not over yet. Looking ahead to the rest of 2024, Scott Rubner, Managing Director of the Goldman Sachs Global Markets Division and tactical expert, pointed out the following historical background for investors. Rubner stated that the S&P 500 index has risen 10.7% year-to-date, and since 1950, the S&P 500 index has risen more than 10% 21 times as of the end of May. In about 90% of these cases, the S&P 500 index rose for the rest of the year. There were only two instances of declines for the rest of the year, in 1987 (-13%) and 1986 (-0.1%). "Since 1950, the median return of the last 7 months of each year (June 1 to December 31) is 5.4%. In the aforementioned 21 cases, the average performance of the last 7 months increased to 8.1%." Rubner added. Rubner also pointed out that the NASDAQ index has risen for 16 consecutive Julys, with an average return of about 4.64%.

More and more Wall Street economists are warning that the Federal Reserve has waited too long to reverse its policy after raising benchmark interest rates to the highest level in 20 years. Mild inflation data released in the past three months, as well as slowing US economic growth and rising unemployment, are leading people to call on the Federal Reserve to lower interest rates at the policy meeting scheduled in two weeks.

It seems highly unlikely that the Fed will cut interest rates in July. Fed Chairman Powell said at an event on Monday that he would not give any guidance on the timing of the rate cut, and most of his colleagues on the Federal Open Market Committee (FOMC) still do not seem to believe that emergency measures are necessary. Powell said recent inflation data "has certainly reinforced people's confidence that inflation is indeed heading downward toward the Fed's 2% target," and policymakers are now focused on the tasks of full employment and price stability. Powell also said more evidence is needed before rate cuts begin. It is widely expected that the FOMC will maintain its benchmark interest rate for the eighth consecutive time in July. Futures data show that investors are betting on at least two 25-basis-point rate cuts starting in September and running through the end of 2024.

Powell said on Monday that recent inflation data "has certainly reinforced people's confidence that inflation is indeed heading downward toward the Fed's 2% target," and policymakers are now focused on the tasks of full employment and price stability. Powell also said more evidence is needed before rate cuts begin. It is widely expected that the FOMC will maintain its benchmark interest rate for the eighth consecutive time in July. Futures data show that investors are betting on at least two 25-basis-point rate cuts starting in September and running through the end of 2024.

However, over the past week and a half, with the release of two key monthly employment and inflation reports, calls for the Fed to cut interest rates in July have intensified. Although the US unemployment rate remains relatively low at 4.1%, it has risen slightly every month for the past three months, and at the beginning of 2023, the unemployment rate was at a low point of 3.4%, which has raised concerns about the risk of an economic recession.

Meanwhile, after an unexpected rise in the first quarter, inflation remained moderate in the second quarter. The so-called core consumer price index (CPI) rose only 0.1% month-on-month in June, the smallest increase since August 2021; the rise in rent, in particular, shows the long-awaited slowdown, and this trend is expected to continue.

Therefore, well-known figures such as Jan Hatzius, Goldman Sachs' chief economist, Mohamed El-Erian, president of the Queen's College at Cambridge University, and Neil Dutta, director of economic research at Renaissance Macro Research, have warned that the risk of the Fed waiting too long to cut interest rates is increasing.

Jan Hatzius believes that the Fed has solid reasons to cut interest rates as early as the July meeting. He pointed out that the latest unemployment and inflation data indicate that the Fed's monetary policy rule requires the federal funds rate to be 4%, while the current target range is 5.25%-5.5%, indicating that adjustment rate cuts will start soon.

Jan Hatzius also said that the reasons for taking action in July include: if there is a temporary rebound, the volatility of monthly inflation may make it difficult to explain the rate cut in September; and the "incontrovertible (if unacknowledged) motive" to "avoid starting rate cuts in the last two months of the presidential election." He said: "This doesn't mean the committee can't cut rates in September, but it really means July is more likely." He also added: "If the reasons for cutting rates are clear, why wait another seven weeks to put them into practice?"

Mohamed El-Erian pointed out at the end of June that the favored inflation indicator of the Fed was weak, highlighting the risk that economic slowdown is magnifying central bank policy errors. "The speed of the economic slowdown is greater than that of most economists' expectations, and greater than that of the Fed's expectations. The economy is slowing down, and there is almost no buffer." "A forward-looking Fed will definitely keep its options open for a rate cut in July. On the contrary, the current Fed is still overly dependent on data and needs a lot of historical data to change it."

Neil Dutta believes that the prospect of the Fed cutting interest rates three times this year is beginning to come into view. Neil Dutta pointed out, "It's all about risk management." He said that the unemployment rate is slowly rising, perhaps by about 0.1 percentage points each month for the past three months; inflation is falling and may continue to fall, but bankruptcies are increasing for both businesses and individuals. He added that the Fed has no reason to wait until everything is certain, inflation is falling, and the rise in the stock market is increasingly driven by a few stocks, so "why not solve the problem in advance?"

In addition, Drew Matus, chief market strategist at MetLife Investment Management, said:"(The Fed) waited too long and the unemployment rate might rise to its peak, but the additional returns on inflation were minimal."

Morgan Stanley recently released a research report stating that the current monetary policy appears to be about half as tight as the tightening seen during Volcker's time in terms of real interest rates in the 1980s, but inflation is only one-third of what it was at that time (about 9% at the time, now about 3%). This alone should make investors concerned about the Fed's overly tight monetary policy.

According to the research reports of Morgan Stanley, as recent data proves that the core personal consumption expenditures (PCE) inflation rate in the United States remains at or below 2%, the view supporting higher balanced inflation has disappeared and the inflation downside risk from remaining seasonal factors and weak labor market still exists. Investors may soon discuss what it would be like for inflation to be below the target level.

Morgan Stanley predicts that the Federal Reserve will cut interest rates seven times in the next year, which is higher than the widely expected five times in the market. However, Morgan Stanley also points out that as the US presidential election nears, the market may consider the possibility of rising inflation under a Republican victory led by Trump.

Overall, economists believe that the reason the Federal Reserve needs to ease monetary policy in July is based on the view that interest rate adjustments take time - possibly a year or more - to have an impact on the economy, so policy makers need to act preemptively to avoid economic downturn.

Although calls for the Federal Reserve to cut interest rates in July have intensified, policy makers remain cautious about acting too early. The reason the Federal Reserve is waiting is because, as demonstrated by first-quarter inflation data, the decline in inflation is winding. Hawks in the FOMC are concerned that any recovery could trigger an increase in inflation expectations, making it more difficult to achieve the 2% target.

Julia Coronado, founder of MacroPolicy Perspectives LLC, said:" A July rate cut is more sudden than the decision FOMC is inclined to make. It is more about committee management and getting more data." Michael Pugliese, senior economist at Wells Fargo & Co, also said:" There are already many examples of people declaring victory too early in this battle against inflation. This is ample reason to wait until the September policy meeting to take action."

Editor / jayden