JPMorgan Chase: The True Reason Behind the Fed's Expected Rate Cut May Not Bode Well for the U.S. Stock Market

BlockBeats News, June 30th, as the market's anticipation of a rate cut by the Federal Reserve continues to rise, the London strategy team at J.P. Morgan stated that the true reason behind the rate cut may not be bullish for the stock market and could even lead to a "wrong type of easing," triggering a market chain reaction. J.P. Morgan strategist Mislav Matejka pointed out that over the past few weeks, the market has already priced in an additional 18 basis points rate cut expectation, but the key lies in the driver behind the rate cut. They presented three possible rate cut scenarios:

The first scenario is a rate cut by the Federal Reserve due to a significant slowdown in economic activity.

The second scenario, which is the most favorable "golden-haired girl" scenario, is where economic growth remains resilient but inflation is contained, which would not put pressure on consumer purchasing power.

The third scenario is that even in the face of some inflationary pressures, the Federal Reserve chooses to cut rates, which could be done "potentially against the backdrop of U.S. government pressure."

J.P. Morgan's strategists expect a combination of the first and third scenarios in the future—a scenario where economic activity slows down but inflation sees some rebound. The strategists stated: "If this scenario materializes, we believe investors will be disappointed." They noted that usually, the U.S. dollar weakens before a rate cut and continues to decline after the cut since 1980. Bond yields also move lower. J.P. Morgan's strategists expressed their expectation that in most cases, the U.S. dollar will hit new lows, and U.S. bond yields will continue to decline. (FXStreet)