Investors generally view a Fed rate cut as a positive for stocks because it allows consumers and companies to borrow money at a lower rate, stimulating economic growth in the process. On the other hand, the Fed can also cut rates in response to a weakening economy. That could negatively affect the market, according to JPMorgan.
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“We have concerns that the September 17 Fed meeting which delivers a 25bp cut could turn into a ’Sell the News’ event as investors pullback to consider macro data, Fed’s reaction function, potentially stretched positioning, a weaker corporate buyback bid, and waning participation from the Retail investor,” wrote JPMorgan Global Head of Market Intelligence Andrew Tyler in a note.
JPMorgan Flags Risks but Sees Case for Gold
JPMorgan still has a “lower conviction Tactical Bullish” view, although the bank believes that inflation, employment, and trade are risks that the market faces. It expects tariffs to increase prices, although the scale and timing of these increases are unclear. In addition, a falling labor supply paired with rate cuts supporting the labor market could lead to wage inflation.
JPMorgan notes that gold could be a good investment amid interest rate expectations that may result in a weaker dollar. The precious metal doesn’t pay out interest, making it more attractive with lower rates.
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