As the US economy faces an uncertain future, the Federal Reserve is considering cutting interest rates to prevent a slowdown. While US equities have been on the rise since October, despite higher interest rates, Bank of America strategists believe that a rate cut could be a warning sign for the economy. Michael Hartnett of Bank of America believes that if confidence in lower rates grows in the latter half of 2024, it could lead to a hard landing.
Despite this uncertainty, investors are still optimistic that the Fed will intervene before major damage is done. Traders have been delaying expectations of a rate cut but now anticipate the first one in September. If traders start betting heavily on a rate cut and cyclical stocks fail to improve, bonds could outperform as concerns about a significant economic slowdown increase.
Investors are also continuing to invest in stocks, with US equity funds receiving $4.6 billion in inflows during the seventh week according to BofA citing EPFR Global data. Investment-grade bonds also received $5.8 billion in inflows during this period, indicating a preference for stability amid economic uncertainty.
The upcoming jobs data set to be released on Friday will offer further insight into the US economy’s health. Expectations are for a slight acceleration in job growth in May, which would indicate a slowing trend in average job growth over the last three months. Any indication that the labor market is still strong could unsettle the market and push back the likelihood of a rate cut even further
