(Bloomberg) — U.S. stocks will outperform the nation’s government and corporate bonds for the rest of the year as the Federal Reserve cuts interest rates, according to the latest Bloomberg Markets Live Pulse survey.
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Exactly 60% of the 499 respondents expect US stocks to deliver better returns in the fourth quarter. Outside the US, 59% said they prefer emerging markets to developed markets. As they mount these challenges, they avoid safe traditional havens like Treasuries, the dollar and gold.
Dovetails are emerging with bullish calls on Wall Street following the Fed’s half-point rate cut this month, a riskier view. China’s biggest stock rally since 2008 after Xi Jinping’s government ramped up economic stimulus also helped boost the bullish attitude.
“The biggest challenge facing the U.S. economy is really high short-term interest rates,” said Yung-Yu Ma, chief investment officer at BMO Wealth Management. “We’re already leaning into risk assets and leaning into US equities,” he said, adding that “if there’s a pullback, we’ll even consider adding to that.”
In two decades, Sep. The benchmark rate was cut by 18 on 2024, and the average official forecast predicts further easing by a half-point at the remaining meetings in November and December.
‘Room to Cut’
The MLIV Pulse survey found that 59% expect the Fed to deliver quarter-point cuts at both of those meetings. Thirty-four percent expect steeper cuts over that period, totaling three-quarters of a point or a full point. That’s in line with swaps traders, who are pricing in roughly three-quarters of share cuts by the end of the year.
Investor confidence that the Fed can engineer a soft landing has grown, putting the S&P 500 index on track to gain in September — historically its worst month of the year — for the first time since 2019.
“The Fed, like many central banks, has a lot of room to cut,” said Lindsay Rosner, head of multi-sector investments at Goldman Sachs Asset Management. “That sets a good backdrop for the economy, particularly in the United States.” This does not destroy the rigor of the estimates, but makes them more reasonable.
When asked which trades are best avoided throughout the year, 36% – the largest group – cited buying oil. Crude oil fell on concerns that rising production outside the OPEC+ alliance would create oversupply next year. In second place, Treasuries bought with 29%.
Treasuries are on a winning streak for the fifth consecutive month. Questions abound about fixed income given divergent views on how quickly the central bank will cut borrowing costs to demonstrate labor market resilience while rate cuts spur bonds. Investors are particularly wary of longer-dated Treasuries, with the risk of inflation heating up again as the central bank eases.
Here’s what Bloomberg strategists say…
“The term premium on long-dated Treasuries will rise, while liquidity risks — already elevated as the government continues to run large fiscal deficits — are likely to worsen.”
– Simon White, Macro Strategist at MLIV
The survey also showed limited enthusiasm for the US dollar, another traditional haven asset. Eighty percent of respondents expect the greenback to end the year flat or fall by more than roughly 1%. The Bloomberg Dollar Spot Index is up less than 1% year-to-date.
The MLIV Pulse survey was conducted Sept. 23-27 among Bloomberg News terminal and global online readers who chose to participate in the survey, and included portfolio managers, economists and retail investors. This week, the survey asks if the downturn in commercial real estate lending is over. Share your views here.
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2024-09-30 00:30:00