©Reuters.Markets are pricing in the Fed making no policy mistakes – Morgan Stanley
Morgan Stanley equity strategists say the Federal Reserve’s dovish shift is an aggressive move to avoid a delay in policy change, and risks delaying attempts to achieve a soft landing. It is interpreted that there is.
They see this as a positive development for stocks, underscoring central banks’ focus on maintaining growth rather than relentlessly reining in inflation.
“This is a bullish outcome for the stock,” analysts said in a client note.
Although strategists acknowledge the possibility of a resurgence in inflation, they believe the change will be welcomed by equity investors, especially given the positive reaction in bond markets.
The market’s confidence in the Fed’s decision is clear, and investors view this as a prudent move. Mr. Powell’s dovish shift has acted as a catalyst for higher valuations, and the market appears to have anticipated this shift.
Strategists say monitoring growth data is important to gauge the impact of policy changes or lower yields. Over the past month, there has been significant improvement, with the equal-weighted S&P 500 index outperforming the market-cap-weighted benchmark.
“This is an encouraging sign. It is important that this momentum continues beyond the end of the year and into 2024.”
While historical data may not support sustained small-cap outperformance due to interest rate cuts, early monetary policy changes in a robust economic environment could lead to a cyclical recovery in nominal growth. , analysts think small-cap stocks could become attractive over the long term.