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SA Sentiment: Will the Fed Cut Rates by 50 or 25 Basis Points?
Small cap stocks dance in the wind: market ignited by expectations of a 50 basis point Fed rate cut.
The optimistic sentiment of the Fed cutting interest rates by 50 basis points this week has driven the performance of small cap stocks. However, the expectation of a 50 basis point rate cut needs to become a reality in order to avoid a blow to small cap stocks.
Taking history as a lesson! What will happen after each "50 basis points rate cut" by the Fed?
Nomura Securities pointed out that three months after the Federal Reserve cut interest rates by 50 basis points, small cap stocks surged, value stocks outperformed growth stocks again, metal prices soared, and the yield curve steepened, indicating a bullish market trend. The Federal Reserve has previously raised interest rates by 75 basis points multiple times, so it is not surprising to start a rate-cutting cycle with a 50 basis point cut, and it may not necessarily trigger market panic.
The bet on a 50 basis point interest rate cut is becoming increasingly significant, and there are also these reasons for not reducing interest rates substantially.
Dow Jones hit a new high, gold reached a new high, and the Japanese yen broke through the 140 level.
The market expects a 50 basis point rate cut, which is not enough! US lawmakers have sent a joint letter to Powell calling for a 75 basis point rate cut.
The futures prices on Monday reflected that investors expected a 50 basis point rate cut from the Fed this week, with a probability of close to 60%. Blackrock said the market's pricing of the rate cut cycle was a bit overdone, while a joint letter from Democratic senators warned that being too cautious about the rate cut would unnecessarily expose the economy to the risk of a recession.
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