UBS: The Fed's final rate cut may exceed market expectations
According to a report by Jinshi, UBS strategists believe there is a clear risk that the ultimate decline in US interest rates will exceed the current market pricing, which could inflate the stock market bubble. The UBS team led by Andrew Garthwaite stated that since 1981, the Federal Reserve's policy easing cycles with 50 basis point cuts have been accompanied by economic recessions, but this time they believe it is a sign of the Fed being aggressive rather than an economic recession. Garthwaite pointed out that the market pricing reflects that interest rates will bottom out around 2.8%, which is the neutral rate level previously hinted at by the Federal Reserve, "therefore there is a clear risk that the ultimate decline in interest rates will exceed expectations." The UBS team believes that the steepening of the yield curve dominated by short-term bonds is favorable for defensive stocks and the consumer sector, but not including luxury goods, and expects small-cap stocks to outperform as their floating-rate debt is three times that of large-cap stocks.
