UBS Wealth Management: The Federal Reserve is expected to cut interest rates by 100 basis points in 2024, and the S&P 500 is likely to rise to 5900 points by the end of the year.

UBS Wealth Management Asia-Pacific Investment Director's Office stated that the Federal Reserve is a latecomer in the global easing cycle. The European Central Bank has already cut interest rates twice. The Swiss National Bank, the Swedish Central Bank, the Bank of Canada, the Reserve Bank of New Zealand, and the Bank of England have also cut interest rates. However, Federal Reserve Chairman Powell emphasized that the Federal Reserve does not believe it is lagging behind the situation. He stated that the U.S. economy remains strong, and the labor market remains robust. Despite the initial rate cut of 50 basis points, the committee is not in a rush to cut rates. UBS Wealth Management pointed out that the Federal Reserve's updated economic forecasts confirm Powell's statement that the committee does not believe that the risk of recession is rising. The Federal Reserve now expects the unemployment rate to be 4.4% by the end of this year, slightly higher than the 4% forecast at the June meeting but still lower than historical standards. The forecast for the end of next year remains at a low level of 4.4%. At the same time, the Federal Reserve expects GDP to achieve steady growth, with a 2% year-on-year growth in the fourth quarter of this year, maintaining a similar growth rate over the next three years. This is in line with the bank's expectations for a soft landing of the U.S. economy. The dot plot reflecting the Federal Reserve officials' interest rate expectations shows that there will be two more rate cuts of 50 basis points remaining this year and another 100 basis points cut in 2025. This is consistent with the bank's expectations for the Federal Reserve's loose monetary policy pace. Historically, the U.S. market has performed well during rate cuts outside of recessions, and this time is unlikely to be an exception. The bank's base case scenario still sees the S&P 500 rising to 5900 points by the end of the year and further increasing to 6200 points by the end of June 2025. Against this backdrop, UBS Wealth Management believes that investors may consider deploying their assets in response to falling interest rates. Given the evidence showing that inflation is under control, the Federal Reserve can now focus on supporting employment and growth while reducing the probability of a recession. The bank's base case scenario still sees a rate cut of 100 basis points for the full year of 2024. As cash returns decline, investors may consider reallocating cash and money market funds to high-quality corporate and government bonds. In the current volatile market conditions, these assets have shown good value. The bank also believes that the range of stock market gains is expected to expand, and growth stocks may continue to rise, especially in the technology sector. In the technology sector, Artificial Intelligence (AI) may become a key driver of market returns in the coming years, so increasing exposure to this sector may be considered. Although the sector's volatility may increase in the coming months due to cyclical and geopolitical risks, this also provides an opportunity to establish a long-term AI position at more reasonable prices. Furthermore, UBS Wealth Management suggests that incorporating alternative assets into a well-diversified investment portfolio can help navigate changes in the macroeconomic environment. The bank views alternative assets as a strategic source of diversification and risk-adjusted returns. Hedge funds with low correlation to traditional assets may help reduce portfolio volatility. However, alternative assets come with unique risks, including illiquidity and low transparency.