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  • According to Bloomberg, top Wall Street strategists disagree over the impact of weaker economic data on the Federal Reserve’s policy outlook and what it’ll mean for stocks.
  • Morgan Stanley MS strategists argue that even as recession fears rise, it is too soon to expect the Fed to stop tightening monetary policy, implying that stocks still have further to fall before reaching a bottom. 
  • Conversely, JPMorgan Chase & Co JPM strategists contend that bets that inflation has peaked will cause the Fed to change course and improve the outlook for equities in the second half.
  • According to Michael J. Wilson of Morgan Stanley, persistent inflation will be what keeps the Fed hawkish this time around.
  • Although in the previous four cycles, the U.S. central bank had stopped tightening its monetary policy before the beginning of an economic contraction, sending a bullish signal for stocks, Wilson wrote in a note that given current historic levels of inflation, the Fed will likely still be tightening when a recession hits.
  • Mislav Matejka of JPMorgan stated in a note on Monday that slowing economic growth and softening labor markets would allow the Fed to pursue a more balanced monetary policy, which would result in a peak in the value of the U.S. dollar and inflation.
  • Paolo Zanghieri, a senior economist at Generali Investments, said he expects the pace of rate hikes to slow after this week’s meeting.
  • While the economic slowdown is intensifying, Sean Darby, a strategist at Jefferies LLC, said that the impact of tighter monetary policy on stocks could subside in the second half of this year.
  • According to Goldman Sachs Group GS strategist David J. Kostin, a rising dollar is expected to put pressure on S&P 500 revenue. In a memo on July 22, the bank’s top-down model indicates that a 10% increase in the trade-weighted dollar should lower earnings-per-share by 2% to 3%.
  • Photo by Foto-Rabe from Pixabay

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