According to Odaily, UBS strategists have highlighted a significant risk that the eventual decline in US interest rates could exceed current market expectations, potentially inflating a stock market bubble. Led by Andrew Garthwaite, the UBS team noted that since 1981, the Federal Reserve's initiation of a policy easing cycle with a 50 basis point cut has always been accompanied by an economic recession. However, this time, they believe it signals the Fed's aggressive stance rather than an impending recession.
Garthwaite pointed out that the market is currently pricing in a bottoming of interest rates around 2.8%, a level previously suggested by the Federal Reserve as the neutral rate. This indicates a clear risk that the eventual decline in rates could be more significant than anticipated. The UBS team also mentioned that a steepening yield curve dominated by short-term bonds would benefit defensive stocks and the consumer goods sector, excluding luxury goods. They also expect small-cap stocks to outperform, as their floating rate debt is three times that of large-cap stocks.