Jean-Paul van Oudheusden, market analyst at eToro. The expert predicts that, with the US labour market cooling and inflation falling, the Fed is expected to follow the ECB’s lead and start lowering interest rates. In his opinion, an increase in unemployment could “rekindle speculation about a substantial 50 basis point cut”. In his opinion, “markets are anticipating a 100 basis point reduction by the end of 2024, with another 100 basis points expected in 2025”.
According to this analyst, “investors are increasingly focused on the unemployment rate, as it tends to rise rapidly at the start of a recession (according to the Sahm Rule). In July, the unemployment rate rose to 4.3%, its highest level since October 2021 and the fourth consecutive monthly increase. In March, it was 3.8%. For August, a slight decline to 4.2% is expected. However, an unexpected increase to 4.4% or 4.5% would significantly increase concerns about economic stability and could rekindle speculation about a substantial 50 basis point cut in interest rates.”
Investors must distinguish between volatility and risk
Oudheusden adds: “Volatility represents temporary fluctuations that do not necessarily impact the fundamental value of a long-term investment, while risk implies a permanent loss in the value of assets. In the US, with a cooling labour market, recession risks are increasing. However, declining inflation is creating room for interest rate cuts: markets are anticipating a 100 basis point reduction by the end of 2024, with another 100 basis points expected in 2025. The Federal Reserve is expected to follow the ECB’s lead on 18 September and initiate a change in interest rates.
Another reason for optimism is that S&P 500 companies are projected to achieve 15.5% earnings growth in the fourth quarter compared with a year ago.”
The key focus will be on US nonfarm payrolls and the unemployment rate this Friday, as these figures contributed to the ‘Black Monday 2024’ event on August 5.
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