After the first rate cut by the Federal Reserve, the market ignited hope for a soft landing, with the potential for a new rise in US stocks.

Bloomberg Terminal's latest survey shows that with the Federal Reserve's first rate cut since 2020, the market generally believes that the possibility of a soft landing for the US economy has increased, and it is expected that the US stock market will trend upward for the remainder of the year. However, market expectations for the stock market's upward trend are relatively conservative. In the recent Markets Live Pulse survey, with 173 participants, 44% of respondents expect the S&P 500 index to rise by less than 6% compared to Wednesday's closing price, while 19% of respondents even expect the index to fall. Only 37% of respondents believe that the index's increase will exceed 6%. Most respondents expect the economy to achieve a soft landing, with 75% predicting that the economy will avoid entering a technical recession by the end of next year. The 6% expected increase is roughly in line with the year-to-date increase in the S&P 500 index. After the Federal Reserve cut rates, both the stock and bond markets saw declines. Federal Reserve Chairman Jerome Powell warned the market not to expect continued large rate cuts and hinted that borrowing costs may need to remain higher than pre-pandemic levels in the long term. This caused the S&P 500 index to give back a 1% increase. Despite Powell's optimistic outlook on avoiding an economic recession, there was still selling in the US Treasury market. The cautious outlook for future stock market increases reflects uncertainty in the market about the Federal Reserve's policy path and economic outlook. Since July, the stock market has been volatile, with a sharp decline in early August, another decline at the beginning of this month, followed by a rebound. Investors are skeptical about whether the artificial intelligence boom can continue to drive profit growth. The survey shows that 57% of respondents expect value stocks to outperform the market in the future, while 43% believe that artificial intelligence will make a strong comeback and become a dominant force in the market. Survey participants tend to agree with Powell's assessment of the economy, with 49% believing that it is a good time to buy stocks. 31% prefer to buy bonds, while the remaining 20% believe that holding cash or gold is a better choice. Gold prices fell by 0.4%, erasing the record gains made earlier this year. The Federal Reserve's first rate cut also provides investors with an opportunity to focus on other potential factors that could affect high-risk assets, including the increasingly tense situation in the Middle East and the upcoming US election on November 5. About 58% of respondents expect that if Donald Trump returns to the White House, the Fed's interest rates will rise by the end of 2025, while the remaining 42% believe that if Vice President Kamala Harris wins, benchmark rates will increase further. Both candidates have proposed plans to increase spending, but neither has addressed market concerns about the possible unsustainable growth of federal government debt. Unexpectedly large rate cut by the Fed Market cautiously optimistic about economic soft landing Before the Fed announced the rate cut, Wall Street traders had already raised the possibility of a half-point rate cut, exceeding the usual quarter-point rate cut. However, the extent of the rate cut eventually decided by the Fed still surprised many analysts. Shima Shah, Chief Global Strategist at Principal Asset Management, stated in a client report, "The Fed's decision to cut rates on a large scale is a rare move in history." She further stated, "The markets have every reason to cheer for today's rate cut, and in the next few months, the markets may continue to celebrate." Almost mockingly, she questioned, "Economic recession? What economic recession?" Fitch Ratings' Chief Economist Brian Colton believes that this rate cut shows that the government is suddenly refocusing on maximizing employment and expressing great confidence in the inflation progress over the past month and a half. While employment growth appears stable, the Fed may be more concerned about the labor market than most people in the market. Recent economic data continues to show complex and changing signals. The unemployment rate remains at a historically low 4.2%, but in the past five months, the rate has increased in four of those months, a pattern that usually precedes an economic recession. Although layoff rates remain low, hiring activity has almost stalled, especially in some white-collar industries, making job search paths unusually difficult for many. A retail sales report released on Tuesday showed that while overall consumer spending in the US remains stable, some discretionary categories such as dining show clear signs of weakness. The Federal Reserve uses the federal funds rate as its main tool to control inflation and unemployment. High interest rates are used to suppress price increases, while low rates are intended to stimulate demand and promote employment. In response to the rapid inflation during the COVID-19 pandemic, the Fed began significant rate hikes in 2022. Although a rate cut by the Fed had been almost certain based on signals in the past few weeks, until the last moment, the market still did not have a clear expectation of whether the Fed would choose to cut rates by 25 basis points or 50 basis points. Some analysts believe that a 50 basis point cut is a necessary measure to prevent an economic recession, while others believe that such a magnitude of rate cut would be a surprise, indicating that the market has overlooked economic weaknesses. Before the Fed's statement was released on Wednesday, economists at Bank of America stated in a report that although there were reasons for the Fed to cut rates by 50 basis points based on weak data, the "fundamental situation" is that the economy will experience a "soft landing" with relatively low rates of unemployment and inflation, although the market still worries about the economy potentially deteriorating. They wrote, "Although there are downside risks, the main message of the meeting should be cautiously optimistic." Other experts believe that the timetable for further rate cuts by the Fed in the future will be more important than the rate cut announced on Wednesday. The Fed typically prefers to gradually cut rates - usually in increments of 0.25% - unless facing an emergency situation. However, most market participants believe that given the current economic conditions, the Fed will need to cut rates by at least 1.5% in the next four meetings. Jay Bryson, Chief Economist at Wells Fargo, believes that the possibility of an economic recession is aboutFor one-third, this judgment is based on the rising rate of arrears and savings, indicating that consumers' spending is outpacing their ability to keep up with inflation.He said: "We see some cracks in the economy." The Federal Reserve believes that Wednesday's rate cut and other potential rate cuts in the coming months should provide some cushion for further economic deterioration. However, it is not yet clear how quickly consumers and businesses will take advantage of lower rates if they feel that overall economic demand is declining. Some economists say they have not seen signs of this yet. Goldman Sachs' chief US economist David Mericle stated in a client report, "Layoffs remain low, job vacancies remain high, GDP is growing at a healthy pace, and there have been no significant negative impacts." However, not everyone agrees with his view. Economists at Citigroup believe that a more serious economic downturn is on the horizon. They point out that surveys show that the proportion of small businesses expecting a decline in income has been the highest since 2010, and hiring expectations remain subdued. They also note that despite recent decreases in mortgage rates, there has not been an increase in home buying or construction activity, which they believe reflects weak demand. Citigroup economists wrote: "Businesses have slowed hiring to reduce labor costs. As hiring slows across the board, workers will be less likely to leave current positions, forcing businesses to start actively laying off employees."