Interest rate cut prospects could bolster U.S. stocks as investors await earnings, elections

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Many investors believe increased clarity on when the Fed will begin easing monetary policy and how much it might lower rates in 2024 could provide a buffer to stocks if markets grow turbulent in coming months.

The prospect of near-term interest rate cuts is bolstering the case for investors to remain bullish after a run in U.S. stocks that may soon be tested by upcoming corporate earnings reports and growing political uncertainty.

Investors late on Tuesday were factoring in an over 70 per cent chance that the Fed will cut rates in September, compared with roughly 50 per cent a month ago, according to CME FedWatch. Fund funds futures are pricing in about 50 basis points of easing in 2024 overall, according to LSEG data. On the other hand, expectations of coming monetary easing combined with easing inflation and still-resilient growth could buoy investor confidence in the face of several potential risks in coming weeks.

“U.S. economic growth is now cooling from the post-pandemic stimulus boom, but not weak,” he said. Stocks have typically risen in the six– to 12-month period following the Fed’s first rate cut, as long as the economy avoids recession, Truist’s research showed.

 

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