Fidelity: Preventive rate cut policy helps boost valuations, raises the U.S. stock market to "overweight"
Fidelity International has upgraded the U.S. stock market to "overweight," as the Federal Reserve lowered interest rates to 3.75%-4.00% and maintained a preventive rate-cutting policy, indicating an intention to support the job market. Although U.S. inflation is above 2%, factors such as improved economic outlook and rate cuts have already been reflected in stock prices. Investors should focus on quality fundamentals, combining global high-quality dividend strategies with bonds to seek long-term attractive investment opportunities
According to the Zhitong Finance APP, the Federal Reserve announced a 25 basis point reduction in the target range for the federal funds rate to between 3.75% and 4.00%, in line with market expectations. Max Stainton, Senior Global Macro Strategist at Fidelity International, stated that the Federal Reserve is maintaining its preventive rate cut policy path, indicating that its policy focus has shifted to supporting the labor market, especially in light of recent pressures in the funding markets. Benefiting from resilient consumer spending and strong investment, the U.S. economy is growing more balanced, alleviating concerns of a rapid slowdown. The firm has upgraded the stock market to "overweight."
He also mentioned that data gaps will mask economic weakness and exacerbate the slowdown in growth, which may prompt the Federal Reserve to further cut rates. An early halt to quantitative tightening (QT) is also seen as a dovish policy inclination, but attention must be paid to the uncertainties brought by Federal Reserve officials' statements during the government shutdown.
Looking ahead to next year, with the new Federal Reserve Chair taking office and voting members leaning dovish, the trend toward a more accommodative policy will become clearer.
The firm also noted that although U.S. inflation remains above 2%, the Federal Reserve is focusing on potential downside risks. The preventive rate cut policy helps boost valuations and sustain optimistic sentiment. Negotiations between the U.S. and its trading partners, as well as corporate earnings performance, provide some support for stock market valuations, leading to the upgrade of the stock market to "overweight."
The improved economic outlook and favorable factors such as Federal Reserve rate cuts have already been reflected in stock prices. As companies begin to announce their earnings, investors may consider starting from quality fundamentals, combining global quality dividend strategies with global quality bonds to find long-term attractive investment opportunities worldwide
