notching a new record closing high on Thursday. During the first quarter of this year, the benchmark index jumped roughly 10.2%, marking its best Q1 gain since 2019.The aforementioned numbers clearly depict the robustness of the current US stock market’s rally, which occurs while interest rates sit at their highest level in more than two decades.
Apart from AI demand, anticipation of interest rate cuts by the Federal Reserve has also increased investor appetite for risk assets. The US central bank previously hinted at three cuts for 2024, while some Wall Street analysts believe there could be more.In the aftermath of risk assets’ outperformance in recent weeks, strategists at HSBC said Tuesday they “remain tactically constructive” on this group, particularly US and Japan stock markets.
For them, a more vital consideration for equities and risk assets at large is the potential for rate cuts by the Federal Reserve and other central banks. The second stage, however, could be more challenging, HSBC cautioned, questioning whether the Fed will manage to reduce rates to 2.5%. They ponder if a pause might be necessary during the process or if, akin to the scenario in the mid-1990s, the policymakers could be compelled to halt the rate cuts after initiating only a few.