Bank of America strategist Michael Hartnett believes stocks are likely to fall after the Fed starts cutting interest rates as the data points to a "hard, not soft, economic downturn," Bloomberg reports.
He points out that in the Fed's history of monetary easing since the early 1970s, interest rate cuts in response to economic downturns have been negative for stock prices and positive for bond prices.
"One very important difference in 2024 is a huge gap as risky assets got ahead of the Fed's interest rate cuts," the Bank of America strategist pointed out.
The US stock market fell after the release of macroeconomic data was much worse than expected, reviving fears that interest rate cuts, which are likely to start in September, will be too late to prevent a recession.
The swaps market has now priced in three rate cuts this year. The likelihood of a rate cut of more than just 25 basis points in September has also increased.
