Barclays: Don't go against the Federal Reserve, the opportunity for cyclical stocks is here!

The Federal Reserve cut interest rates by 50 basis points, completely igniting the global market this week, with almost all assets except US Treasury bonds soaring. Barclays believes that a significant interest rate cut will help the US economy achieve a soft landing, and in this situation investors should not go against the Federal Reserve, but should avoid shorting cyclical stocks. In a report released on Friday, Barclays' analyst team led by Emmanuel Cau wrote: It is now clear that the Federal Reserve has shifted to growth protection mode. Time will tell everything, but with upcoming data remaining stable, the possibility of a soft landing still exists. The report pointed out that the Federal Reserve's unexpected 50 basis point rate cut to support economic growth shows its commitment to achieving a soft landing for the economy. The market responded positively to this policy adjustment, with prices of risk assets rising, and the yield curve steepening, indicating that investors agree with the Federal Reserve's goals. However, although the market expects further rate cuts in the future, the current pricing appears overly optimistic compared to the Federal Reserve's expectations. Barclays believes that if the upcoming data supports a soft landing for the US economy, the Federal Reserve may not cut interest rates as significantly as the market expects. Barclays stated that in the absence of catalysts challenging a soft landing, US stocks, especially cyclical stocks, face the least resistance to upward movement. Historical experience shows that as long as there is no recession following a Federal Reserve rate cutting cycle, these assets typically rebound steadily. Despite adverse factors such as slowing Asian growth and US election uncertainty, recent positive surprises in the US and EU economies, as well as the steepening of the yield curve, provide additional fundamental support for cyclical stocks. Cyclical stocks were previously oversold and undervalued, making their valuation still attractive to investors. Historically, the fourth quarter is usually the best performing period for US stocks, with cyclical stocks often outperforming defensive stocks. In addition, the rebound of cyclical stocks following the defensive positioning of the market since the summer may come as a surprise to many investors. Barclays concluded by stating that now that the long-awaited first rate cut by the Federal Reserve is in the past, the market should refocus on fundamentals. The September PMI data to be released next week, as well as the upcoming third-quarter earnings season, will provide more clues about the short-term trend of the US economy. The institution wrote: We note that the latest earnings per share (EPS) revisions have turned negative again, but the decline exceeds what PMI implies. In our recent conversations with clients about the Federal Reserve meeting, it seems that most people are not eager to increase exposure to cyclical stocks, as the upcoming third-quarter earnings season is seen as a potential source of downside risk. However, if PMI stabilizes and broader activity surprises continue to rebound, investors may choose to overlook recent earnings risks. Especially since market expectations for third-quarter earnings have been generally lowered since the summer, this lowers the threshold investors need to overcome. This article is republished from "Wall Street News," GMTEight Editor: Li Fo.