Despite the anticipated Fed rate cuts, the focus for stock markets over the next several months will be on labor and growth data rather than the magnitude of the rate cuts themselves, Morgan Stanley strategists said in a Monday note.
In contrast, considering the uncertainty priced into the bond market around the size of this first-rate cut, the worst short-term scenario for equities would involve a sharp negative price reaction following the FOMC meeting. Moreover, while value stocks often outperform heading into a rate cut, growth stocks tend to take the lead afterward. At the index level, returns following the first Fed rate cut have been mixed.
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