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Sell-off Looming? Two Giants Issue Sudden Warnings!

Is the decline in US stocks just getting started?

Today, Marko Kolanovic, Chief Market Strategist at J.P. Morgan, stated that the recent three-week decline in the US stock market is just the beginning of a larger-scale sell-off. With the escalation of macroeconomic risks such as rising US bond yields, a stronger dollar, and increasing oil prices, the sell-off could intensify.

Meanwhile, strategists at Bank of America have also issued a warning, stating that there is a high risk for US tech giants to fulfill their promises in artificial intelligence amid the possibility of profit slowdown. The bank forecasts that although these companies’ first-quarter growth is still expected to be 39% higher than the same period last year, it is lower than the 63% growth seen in the last three months of 2023. The bank’s strategists predict that by the fourth quarter, the growth gap between the seven tech giants and other companies in the S&P 500 index may narrow, potentially leading to a shift of funds from tech stocks to value-oriented stocks.

This week, Tesla (TSLA), Meta (formerly Facebook), Microsoft (MSFT), and Google’s parent company Alphabet (GOOG) will all report their earnings. Last week, Wall Street expressed concerns about the upcoming earnings reports, with the tech-heavy Nasdaq falling 5.5% for the week, marking its largest weekly decline since November 2022. Analysts suggest that whether the sell-off in tech stocks will continue depends on the earnings reports of major tech companies.

Warnings from J.P. Morgan and Bank of America

On Monday local time, Marko Kolanovic, Chief Market Strategist at J.P. Morgan, stated in a report that although corporate earnings expected to be announced this week may temporarily stabilize the market, it does not mean that the stock market has overcome its difficulties.

Marko Kolanovic pointed out that factors such as complacency in market valuations, persistent high inflation, diminished expectations of a rate cut by the Federal Reserve, and overly optimistic profit expectations have intensified downside risks, and the future sell-off in US stocks may deepen further. Marko Kolanovic wrote, “Market corrections are typically defined as declines of 10% or more, and pullbacks may continue. Market concentration has been very high, with expanded positions, which is typically a danger signal with the risk of a reversal.”

Marko Kolanovic believes that recent trading patterns and the current market narrative are similar to those of last summer. At that time, unexpected inflation increases and the Fed’s monetary policy shift to hawkishness triggered declines in risk assets. However, unlike then, investors’ positions now appear to be even higher, which also means greater downside risk.

The strategist advises investors to remain defensive when the stock market looks “problematic.” In his model portfolio, defensive strategies include hedging risky assets with long-term volatility and exposure to commodities (excluding gold).

In addition, Marko Kolanovic also told clients that it is time to consider buying Japanese consumer-related stocks, as expected real wage growth is expected to stimulate personal consumption in Japan, boosting consumer stocks.

Marko Kolanovic and his team are among the few bearish contrarian investors on Wall Street this year. While most of their peers are raising their expectations for US stocks, these J.P. Morgan strategists generally remain pessimistic about stocks and risk assets, with their year-end target for the S&P 500 index at 4200, the lowest among major Wall Street banks. This target implies a decline of about 16% from Monday’s closing level for the S&P 500 index by the end of 2024.

Furthermore, on Monday local time, analysts at Bank of America also issued a warning, stating that there is a high risk for US tech giants to fulfill their promises in artificial intelligence amid the possibility of profit slowdown. Although these companies’ first-quarter growth is still expected to be 39% higher than the same period last year, it is lower than the 63% growth seen in the last three months of 2023.

Bank of America points out that companies in the S&P 500 index, excluding the seven tech giants, are expected to see a 4% year-on-year decline in earnings for the first quarter. However, according to Bank of America’s data, about 25% of stocks in the benchmark index are expected to achieve positive earnings growth and accelerate growth in the first quarter.

The bank’s strategists predict that by the fourth quarter, the growth gap between the seven tech giants and other companies in the S&P 500 index may narrow, potentially leading to a shift of funds from tech stocks to value-oriented stocks.

Market Disagreements Abound

However, analysts on Wall Street have widely differing views on US stocks.

UBS recently stated that the momentum of US tech giants is dissipating, as the sector’s previously enjoyed profit momentum faces cooling. Ahead of this week’s earnings releases, UBS downgraded its industry ratings for six major tech giants, including Google, Apple, Amazon, Meta, Microsoft, and Nvidia, from “overweight” to “neutral.” UBS expects the earnings growth of these six US tech stocks to slow down, with other tech stocks likely to outperform them by the end of this year.

On April 22, King Lip, Chief Strategist at Baker Avenue Wealth Management, stated that whether the sell-off in tech stocks will continue actually depends on the reports of major tech stocks. He said, “Since we’ve had a little bit of a correction, valuations are definitely more reasonable now.”

King Lip said, “The pullback was long overdue. I think this is just a regular adjustment at this point.” He has begun increasing stock exposure for clients and plans to buy more stocks as the stock market declines further. However, he believes that the S&P 500 index may decline by up to 10% from its high on March 28.

The stock strategy team led by Michael Wilson at Morgan Stanley stated that with the strengthening of the US economy, it is expected that US corporate profit growth rates in 2024 and 2025 will significantly improve. This is also a rare optimistic outlook for earnings per share by “big short” Michael Wilson since 2023. Regarding the latest outlook for US stock earnings, Michael Wilson emphasized that the rebound in US business activity survey data, supported by new order data, “confirms the sustained trend of future profit growth.”

In addition, Dan Ives, an analyst at the well-known investment firm Wedbush, stated that extensive field research has made the firm very confident in corporate AI spending and expects AI spending to account for approximately 10% of enterprise IT budgets this year, compared to less than 1% in 2023.

Dan Ives said that the profit environment for tech companies still looks strong, especially considering the fervor for artificial intelligence among major corporations, which has driven the surge in tech stocks over the past year. The strategist added that an incredibly strong earnings season could be the main positive catalyst for tech stocks, predicting a further 15% surge in the industry by the end of 2024.

A recent research report from CICC pointed out that the expectation for the postponement of a Fed rate cut is still brewing. Currently, the number of rate cuts implied by CME interest rate futures has been reduced to one, leading to continuous rises in the 10-year US Treasury yield and the dollar, approaching previous highs. This “fire” finally “burned” to US stocks last week, with the S&P 500 index falling 3.1% last week, and the Nasdaq index plummeting 5.5%, attracting market attention. CICC said, “We are not surprised by this. On the one hand, the decline in US stocks has its ‘inevitability,’ and on the other hand, the decline in US stocks at this level is not a bad thing. It not only can digest its overly strong expectations but also helps restart rate-cutting trades, thereby laying the foundation for subsequent rebounds.”

Gloomy Outlook for Tesla

On April 22, Tesla’s stock price fell by 3.4%, marking the seventh consecutive trading day of decline and further reducing its market capitalization to $452.4 billion. Since the beginning of this year, Tesla’s stock price has cumulatively fallen by 43%, evaporating $339 billion in market value, equivalent to about 24.6 trillion yuan.

After-market trading on April 23, Tesla will report its first-quarter earnings. Wall Street expects Tesla to face its worst quarter in seven years, with the first-quarter gross margin expected to hit its lowest level since early 2017. According to a survey of 20 analysts by data analysis platform Visible Alpha, Wall Street expects Tesla’s automotive gross margin, excluding regulatory credits, to be 15.2%, down from 19% in the same period last year, the lowest since the fourth quarter of 2017.

In addition, according to Bloomberg’s widespread estimates, Tesla’s adjusted earnings per share for the first quarter are expected to be $0.52, with the highest revenue reaching $22.31 billion. This will be the first revenue decline for the company in four years. In terms of profitability, Tesla is expected to achieve a operating profit of $1.49 billion in the first quarter, a 40% decrease from a year ago. In terms of non-GAAP indicators, Wall Street expects adjusted net income to be $1.79 billion and adjusted EBITDA to be $3.32 billion.

Currently, Tesla’s sales growth is slowing, and it is expected to have a significant impact on Tuesday’s earnings. Earlier this month, data disclosed by Tesla showed that it delivered 386,800 vehicles in the first quarter, an 8.5% decrease from the same period last year, while inventory increased.

This weekend, Tesla announced price cuts for its Model 3, Model Y, and other models worldwide, further eroding profits. Several analysts expect Tesla’s annual deliveries to decline for the first time in 2024 after years of double-digit growth. Tesla warned in January that growth in deliveries this year would “significantly decrease,” indicating that price cuts were not enough to boost demand.

Last week, the electric car maker announced layoffs of more than 10%, and on the same day, Drew Baglino, Senior Vice President of Tesla Powertrain and Energy Engineering, and Rohan Patel, Vice President of Public Policy and Business Development, announced their resignations. Analysts said Tesla’s layoffs were directly related to the company’s “Waterloo” in the first quarter of 2024 as automotive sales faltered.

John Murphy, an analyst at Bank of America, wrote in a report, “Sentiment towards Tesla has worsened since the end of 2023.” Recently, more than 10 institutions, including Goldman Sachs, Morgan Stanley, and Deutsche Bank, downgraded their 12-month target prices for Tesla.

Among them, Deutsche Bank downgraded Tesla’s rating from “buy” to “hold” and lowered its target price from $189 to $123. The bank pointed out that the launch of the low-cost car Model 2 is likely to be delayed, and the company’s strategic focus has shifted to the robotaxi business, which is considered to have management risks and requires several years.

Overall, the divergence in Wall Street’s views on US stocks, especially in the tech sector, underscores the uncertainty and volatility currently prevailing in the market. Investors are closely monitoring earnings reports and macroeconomic indicators for clues about the future direction of the stock market.

With concerns about profit growth, inflation, interest rates, and geopolitical tensions lingering, investors face a challenging environment characterized by heightened risk and increased market turbulence. As the situation evolves, market participants must remain vigilant and adapt their strategies accordingly to navigate through these uncertain times.

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US Stock Market Faces Massive Outflows Amid Economic Strength and Persistent Inflation Concerns

A team led by Michael Hartnett, a strategist at Bank of America, pointed out in their latest report that the robust performance of the US economy and stubborn inflation have reignited concerns in the market about “higher and longer” interest rates, leading investors to withdraw funds from the stock market.

Bank of America cited data from EPFR Global, indicating that investors withdrew $21.1 billion from equity funds over the past two weeks as of Wednesday. This marks the largest outflow from the US stock market since December 2022. On Friday alone, several US tech companies experienced a “sell-off,” with their stock prices plummeting. By the day’s close, Advanced Micro Devices (AMD) plummeted by 23%, dragging down stocks including NVIDIA (NVDA), which fell by 10%, resulting in a market value loss of over $200 billion overnight. Additionally, streaming giant Netflix (NFLX) plunged over 9%, shedding $23.9 billion in market value in a single day.

The report points out that with the resurgence of inflation, the better the US economy performs, the further the Federal Reserve’s rate-cutting cycle is pushed back. Hence, the adage “good news for the US economy becomes bad news for the stock market” is now starkly contrasting with investors’ sentiments during the first quarter when they were anticipating a “Goldilocks rally.”

In the first quarter, investors viewed positive economic data as a boon for corporate earnings. Although this lowered expectations for Fed rate cuts, some degree of monetary easing policies was still considered almost certain. However, as economic data continues to display resilience, rate cuts are being further postponed, with some policymakers even suggesting that further rate hikes are not out of the question.

After a strong performance in the first quarter, US stocks experienced a downturn in April. Facing inflation and a hot job market, rate-cut expectations have dwindled from nearly 7 cuts at the beginning of the year to less than 2 cuts, with escalated Middle East conflicts also affecting risk appetite. Some analysts point out that the market is concerned that geopolitical tensions could lead to rising energy prices and continued inflation, further delaying the Fed’s dovish stance. Michael Hartnett, the strategist at Bank of America, stated that as the market interprets sustained strong US data as negative, risk assets are undergoing an adjustment in the second quarter.

Hartnett noted that bulls consider this pullback “healthy,” while bears are growing increasingly wary of US growth stocks as they strive to break new highs. Meanwhile, high-yield bonds are also showing ominous signs. US stocks may transition into a “bad news is bad news” state.

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Morgan Stanley Warns of Possible Bear Market Amid Speculation of Fed Rate Cuts

On Tuesday, Morgan Stanley’s(MS) Chief Economist, Torsten Slok, issued a warning suggesting that if the Federal Reserve maintains its current interest rates, the U.S. economy could experience a “hard landing” next year, potentially leading to a scenario reminiscent of the severe market downturn seen in 2022.

Despite cautioning against the risks posed by a high-interest-rate environment, Slok also anticipates that the Federal Reserve is unlikely to cut rates significantly in the near term. He predicts that the Fed may keep rates elevated for at least one to two quarters ahead to achieve the desired cooling effect on the economy. However, this stance could heighten the risk of a downturn in the stock market.

Concerns about a market downturn akin to that of 2022 were underscored by Slok during an interview on Tuesday. He pointed out that if the Fed refrains from substantial rate cuts this year, the ongoing “brief sweet spot” in the U.S. stock market could dissipate, primarily due to the negative effects of hawkish policies.

Slok warned that the Fed’s high-interest-rate environment has already inflicted significant damage on the balance sheets of highly leveraged consumers and businesses, as well as on banks and regional lenders.

“As the current ‘brief sweet spot’ gradually fades away, if the stock market fails to continue its upward trajectory, you will eventually see the dominant effects of high interest rates. This could be a scenario we witness in 2025, where we might face an even harder landing risk,” Slok cautioned.

Slok’s warning suggests that the market may potentially experience a situation akin to 2022 when rapid Fed rate hikes led to a significant downturn, with the S&P 500 index plummeting by 19.44% during that year.

Despite the cautionary tone regarding the risks of high-interest rates, Slok believes that the likelihood of rate cuts by the Fed is slim. In fact, Slok was among the earliest on Wall Street to predict that the Fed would keep monetary policy unchanged this year. He previously forecasted that the U.S. economy could unexpectedly exhibit robust performance, and rising inflation across multiple sectors could act as potential impediments to Fed rate cuts. He reiterated this viewpoint during Tuesday’s interview.

Current developments seem to validate his predictions. With inflation data consistently surpassing expectations over the past three months and a strong job market, most investors have become skeptical about rate cuts in June.

While June was previously considered the most likely month for rate cuts, doubts about rate cuts in September have now emerged. The CME FedWatch tool indicates that the market currently assigns only a 15% probability to the Fed’s first rate cut in June.

Some even predict that if the Fed aims to curb inflation, it may opt for rate hikes. However, while Slok forecasts that the Fed may refrain from rate cuts in the short term, he also disagrees with the notion of potential rate hikes by the Fed.

“I think, from the perspective of transmission mechanisms, they are more inclined to maintain high interest rates for a period, perhaps one or two quarters, and then achieve the goal of slowing down the economy.”

In conclusion, Morgan Stanley’s warning about a potential bear market, coupled with skepticism surrounding Fed rate cuts, underscores the uncertainties looming over the stock market amid evolving economic conditions.

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Liz Truss Endorses Donald Trump for Presidential Reelection, Predicts Market Surge

In a significant development ahead of the US presidential election, Liz Truss, the UK’s Foreign Secretary, has publicly thrown her support behind Donald Trump’s bid for a second term as President of the United States. Truss’s endorsement of Trump’s reelection campaign underscores the growing international interest in the outcome of the upcoming election and its potential implications for global diplomacy and trade relations.

Truss’s endorsement of Trump’s candidacy comes amidst a backdrop of heightened political tension and uncertainty surrounding the US election. In a recent statement, Truss emphasized the importance of maintaining strong bilateral relations between the UK and the US, citing Trump’s leadership as instrumental in advancing shared interests and addressing key global challenges.

Truss’s endorsement of Trump has sparked discussions among investors regarding the potential market impact of a Trump reelection victory. Analysts have identified several stocks that could experience significant gains in the aftermath of a Trump victory, driven by expectations of favorable policy outcomes and economic stimulus measures.

Stocks to Watch in the Event of a Donald Trump Reelection:

  1. Lockheed Martin Corporation (LMT): As a major defense contractor, Lockheed Martin stands to benefit from Trump’s commitment to bolstering US defense capabilities and increasing military spending.
  2. The Boeing Company (BA): Boeing, a leading aerospace and defense manufacturer, could see increased demand for its products under a Trump administration focused on revitalizing the domestic manufacturing sector and promoting job growth.
  3. Exxon Mobil Corporation (XOM): Exxon Mobil, one of the world’s largest publicly traded oil and gas companies, may experience a surge in stock price amid expectations of relaxed regulations and supportive policies for the energy industry under a Trump presidency.

Truss’s endorsement of Trump’s reelection bid has added a new dimension to the ongoing political discourse surrounding the US election. As investors closely monitor developments leading up to Election Day, the intersection of politics and markets remains a focal point for those seeking to navigate the evolving landscape of global geopolitics and economic policy.

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US March CPI Surges Beyond Expectations, Pre-Market Plunge in US Stocks

The US Consumer Price Index (CPI) for March surged beyond expectations, causing a significant pre-market plunge in US stocks. The unexpected rise in inflation has sent shockwaves through the market, raising concerns about the Federal Reserve’s future monetary policy actions and potential impacts on various sectors and heavyweight stocks.

According to the latest data released by the US Bureau of Labor Statistics, the CPI increased by 3.5% year-over-year in March, surpassing economists’ expectations. The core CPI, which excludes volatile food and energy prices, also rose by 0.4% month-over-month and 3.8% year-over-year, exceeding forecasts.

The higher-than-expected inflation figures have fueled fears of tighter monetary policy measures by the Federal Reserve to combat inflation. Investors worry that the central bank may respond by raising interest rates sooner than anticipated, which could dampen economic growth and corporate earnings.

The news of surging inflation has triggered a pre-market sell-off in US stocks, with major indices experiencing sharp declines. Investors are reevaluating their portfolios and reallocating assets in response to the heightened inflationary pressures.

In this scenario, the performance of heavyweight stocks in various sectors is under scrutiny, as their earnings and stock prices may be affected by the CPI data.

  1. Apple Inc. (AAPL): As a technology giant with a significant presence in consumer electronics, Apple’s earnings may face pressure from rising inflation, which could lead to higher production costs and reduced consumer spending. The stock may experience downward pressure as investors reassess the company’s growth prospects in a higher inflation environment.
  2. Amazon.com Inc. (AMZN): As one of the largest e-commerce and cloud computing companies, Amazon’s earnings could be impacted by rising inflation, affecting its margins and consumer spending habits. Additionally, increased shipping and logistics costs may weigh on profitability. The stock may see increased volatility as investors gauge the company’s ability to navigate inflationary pressures.
  3. Microsoft Corporation (MSFT): With its diverse portfolio of software, cloud services, and hardware products, Microsoft’s earnings may be influenced by inflationary trends, particularly in terms of higher operating costs and reduced corporate spending. However, the company’s strong position in the cloud computing market may help mitigate some of these challenges. Investors will closely monitor Microsoft’s guidance and outlook for any signals on how it plans to address inflation-related headwinds.
  4. Alphabet Inc. (GOOG): As the parent company of Google, Alphabet’s earnings could be impacted by rising inflation, affecting its advertising revenue and operating expenses. Increased competition and regulatory scrutiny may also add to the company’s challenges. Investors will scrutinize Alphabet’s earnings report for insights into its ability to maintain growth amid inflationary pressures.
  5. Tesla Inc. (TSLA): As a leading electric vehicle manufacturer, Tesla’s earnings may be sensitive to inflationary pressures, particularly in terms of raw material costs and supply chain disruptions. Additionally, higher interest rates could dampen demand for high-growth stocks like Tesla. Investors will closely monitor the company’s production capacity, delivery numbers, and outlook for any signs of resilience or vulnerability in the face of inflationary headwinds.

Overall, the unexpected surge in the US March CPI has rattled investors and raised concerns about the potential impact on the broader economy and corporate earnings. As inflationary pressures continue to mount, investors will closely monitor earnings reports and guidance from heavyweight stocks to assess their resilience and adaptability in navigating the challenging environment.

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US CPI Surges to 3.5% in March, Exceeding Expectations; US Treasury Yields Soar

The Consumer Price Index (CPI) in the United States rose by 3.5% year-on-year in March, surpassing market expectations. Previously, analysts had anticipated a 3.4% increase in the CPI for the same period.

Excluding the volatile food and energy components, the core CPI increased by 0.4% on a monthly basis and by 3.8% year-on-year, higher than the earlier estimates of 0.3% and 3.7%, respectively. Following the data release, the yield on the US 2-year Treasury note surged by 13 basis points to 4.88%.

This news spells trouble for consumers, market participants, and Federal Reserve officials, who had hoped for a slower pace of price increases to enable gradual interest rate cuts later this year.

The Consumer Price Index measures the cost of a basket of goods and services in the $27.4 trillion US economy. It was expected that all components of the index, as well as the core index excluding food and energy volatility, would rise by 0.3%.

Dan North, Chief Economist at Allianz Trade North America, remarked, “We’re not hitting that target quickly enough, or convincingly enough, and I think this report shows that.”

Federal Reserve Chair Jerome Powell recently stated that despite strong economic performance, rate cuts remain a possibility this year. He specifically noted that better-than-expected inflation data for January and February did not alter the Fed’s policy outlook. However, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, expressed skepticism about the need for rate cuts if inflation remains sticky, stating, “I would question whether we need to cut rates.” This underscores the importance of closely monitoring inflation data, particularly in light of recent increases in crude oil prices.

Other key US economic data to watch include the Producer Price Index (PPI) and weekly initial jobless claims, set to be released on Thursday, as well as the preliminary April Consumer Sentiment Index from the University of Michigan, scheduled for release on Friday. These data points should provide a clearer picture of the health of the US economy.

According to data from the US Department of Labor released last Friday, the economy added 303,000 jobs in March, surpassing February’s 270,000 and expectations of 200,000. Strong sectors such as healthcare and government continued to drive job growth, but cyclically sensitive industries like construction, retail trade, and leisure and hospitality also saw gains.

While such robust data may not provide a compelling case for the Fed to cut rates quickly, the report does offer some points for inflation doves to highlight. It indicates a downward momentum in inflation, keeping the Fed’s path seemingly open. However, if the stubborn, sluggish anti-inflation trend seen in January and February persists for another month, it could be painful for investors, as evidenced by this week’s stock market sell-off.

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Wall Street’s Expectations for Fed Rate Cuts Diminish to Zero

In just a few short months, Wall Street’s expectations for the number of interest rate cuts by the Federal Reserve this year have plummeted from 7 to 3, and now, that number may further decline to zero.

Towards the end of last year, despite the Fed’s projection of only three rate cuts for the year due to rapidly declining US inflation, Wall Street speculated on a more aggressive normalization of rates. It anticipated the Fed to cut rates as early as March, bringing the federal funds rate down from the current 5.25-5.5% range to 3.5%-3.75% by year-end.

However, influenced by a series of economic indicators in recent months, the Fed’s first rate cut of the year has yet to materialize, while the market has revised its expected number of cuts from 7 to 3.

Last week, as several Fed officials adopted a hawkish stance and the US Labor Department released robust non-farm payroll data, more and more economists on Wall Street began to anticipate no rate cuts this year.

The Fed Appears Increasingly Hawkish Just this past Friday (April 5th), the US Labor Department published a robust non-farm payroll report. March saw a substantial increase in new jobs in the US, marking the largest gain since May of the previous year. Additionally, inflation data for the first two months of the year remained higher than expected.

In the face of such economic data, internal hawkish voices within the Fed seem to be growing louder. Last Thursday, Minneapolis Fed President Kashkari, often dubbed the “hawk king,” stated that with the US economy performing so well, there was no need for rate cuts:

“If our economy is running so attractively, people are working, businesses are doing well, and inflation is falling, why do anything?”

Fed Governor Bowman expressed an even more aggressive viewpoint on Friday. She suggested that if US inflation remained above the Fed’s 2% long-term target, there might be a need to further raise policy rates this year instead of cutting them:

“Although this is not my baseline expectation, I still believe that if inflation stalls or reverses in the future meetings, we may need to further increase policy rates.”

More Economists Align with “No Rate Cuts This Year” In fact, not just the Fed, but an increasing number of top economists on Wall Street also realize that rate cuts from the Fed may not happen at all this year.

According to Ed Yardeni, President and Chief Investment Strategist at Yardeni Research, investors may finally be considering the possibility of no rate cuts this year. He added that recent oil price increases indicate upward inflation risks still exist.

Other top economists advocating for no rate cuts this year include Mohamed El-Erian, Chief Economic Advisor at Allianz Group, and Torsten Slok, Chief Economist at Apollo Global Management. El-Erian stated last month that due to inflation stickiness, the Fed should wait “a few years” before cutting rates.

Slok warned that the frenzy surrounding AI stocks would make it difficult for the Fed to cut rates:

“We are absolutely in an artificial intelligence bubble, and one of the side effects is that when tech stocks rise, it eases financial conditions. This makes the Fed’s job even more challenging.”

Following the release of the strong non-farm payroll report, the CME FedWatch tool indicates that the market’s probability of the Fed’s first rate cut in June has decreased from 55.2% a week ago to 50.8%. If the upcoming US CPI data on Wednesday (April 10th) again exceeds expectations, this probability may drop below 50% — in other words, the prospect of a rate cut by the Fed in June is increasingly uncertain.

US Bank analysts had previously predicted that if the Fed does not cut rates in June, the first rate cut might be postponed until next year. This is because as the 2024 presidential election approaches, rate cuts in the latter half of this year are unlikely: “If the Fed tells the market that a rate cut in June is unreasonable, then rate cuts later this year will be difficult to justify.”

Can US Stocks Still Rise? However, despite economists’ diminishing expectations of rate cuts this year, they are not overly pessimistic about US stocks. While lower rates theoretically benefit stock prices, in the long run, it’s earnings growth that ultimately drives stock price appreciation.

Currently, amidst robust US economic data, market confidence in US corporate earnings expectations is growing stronger, providing support to US stocks near record highs.

Billionaire investor and founder of Fisher Investments, Ken Fisher, stated that robust employment data fuels optimistic economic growth prospects, and the increasing prevalence of artificial intelligence enhances corporate efficiency, suggesting that even with high Fed rates, stock prices may continue to rise.

If the US stock market and economy can indeed withstand higher rates for a longer period, this would give the Fed more ammunition to cut rates significantly when the next inevitable recession hits — which in the long term, seems like good news for US stocks.