Jiaxin Wealth Management: "25 basis points" most beneficial to financial assets, significant interest rate cuts may trigger panic.

Omar Aguilar, chief investment officer of Schwab Asset Management, said that if the Federal Reserve cuts interest rates by 25 basis points next week, it will be the most favorable scenario for financial assets; a larger rate cut could potentially raise concerns among investors. Speaking at the "Future Proof" conference in Huntington Beach, California, Aguilar pointed out that if policymakers maintain current borrowing costs and considering that a rate cut is already priced in by the market, Wall Street may have a "quite negative" reaction; on the other hand, if the Fed takes more aggressive action - a 50 basis point cut - investors may interpret it as a signal of "economic distress." "Therefore, a 25 basis point rate cut seems to be the most appropriate choice," he said in an interview. "This is the widespread expectation in the market at the moment, and I believe it will be seen as a 'fine-tuning' of current monetary policy." Currently, traders have fully priced in a 25 basis point rate cut by the Fed at its policy meeting on September 16-17. Weaker-than-expected job market data released last week prompted some Fed watchers to speculate that officials may consider a 50 basis point cut this month. Despite signs of weakness in the labor market data, Aguilar still believes the U.S. economy is heading towards a "soft landing" and that "there is no risk of recession within the realm of possibility" - which suggests that the U.S. stock market is poised for further gains. However, he also expects market volatility to increase in the coming months after the S&P 500 index surged 31% from its recent lows in April. "We believe this is a good opportunity for active fund managers and stock pickers," he said. "The divergence in stock performance will likely intensify." Aguilar revealed that in the past 3 to 5 months, Schwab has started to increase its exposure to small-cap stocks in anticipation of the rate cut, while also positioning in more cyclical sectors in the market - these sectors typically perform well as the economy transitions from a slowdown to recovery. He stated that while the labor market has cooled off slightly, it is still "quite healthy overall" and at acceptable levels for investors. In addition, the stimulus effects of President Donald Trump's tax legislation will be beneficial for investors, and the balance sheets of both businesses and consumers remain strong. "Taking all these factors into account, they will provide strong support for the economy and the market," Aguilar said.