Rate cut expectations outweigh economic concerns! Survey shows: US stocks expected to finish the year strong.

According to the latest Markets Pulse survey, the US stock market is expected to shake off the impact of inflation risks and weak job prospects, ending the upward trend earlier this year. In a survey conducted from September 5th to 10th, two-thirds of the 116 respondents believed that the S&P 500 index would continue to rise in 2025, with most expecting that the signal of further rate cuts by the Federal Reserve before the end of the year would drive the index higher. Last week's release of non-farm employment data was significantly below expectations, catching traders off guard. These data cast a shadow over the US economy, prompting people to bet that the Federal Reserve will cut interest rates three times this year, with rate cuts starting on September 17th. At the same time, the weak data has reignited the debate over whether the Federal Reserve may cut rates by another 50 basis points next week. What is the main reason for the US stock market to rise by the end of 2025? Matt Maley, Chief Market Strategist at Miller Tabak & Co, said: "As long as the rate cuts are small and gradual, this view is reasonable. Wall Street would be very happy to see this. But if the rate cuts are too large, it will indicate that economic growth will slow significantly, which is not good for the currently expensive stock market." Economic worries linger Strategists at J.P. Morgan warned that if policymakers cut rates as expected next week, the Federal Reserve's action could dampen investors' enthusiasm. This would be similar to last year when policymakers cut rates by 50 basis points, but the S&P 500 index still fell by 0.3% that day as concerns about the economy gradually spread. Analysis from Markets Live shows that when the Federal Reserve cuts rates, regardless of the initial reaction, the stock market usually rises in the following week and month. However, economic worries persist. Less than one-fifth of respondents believe that a rebound in economic data will be the catalyst for a rise in the stock market for the remainder of the year. What is the main reason for the US stock market to fall by the end of 2025? Michael Bailey, Research Director at FBB Capital Partners, said: "The economy is facing a mild stagflation. My guess is that inflation rates will rise slightly to low single-digit levels, while the unemployment rate will gradually deteriorate. However, real stagflation is only a step away from a full-blown recession, and it is difficult to put a full-blown recession back into the Pandora's box." Stock performance will outperform US bonds So far, data shows that the US economy is not too cold, but also lacks strong resilience. Despite a stagnant labor market and a struggling real estate market, economic surveys show that both manufacturing and services sectors are improving. At the same time, consumers seem stable, especially with the prospect of rate cuts helping to increase the likelihood of a soft landing, creating a favorable environment for the stock market. Analyst Mike Wilson from Morgan Stanley said on Monday, "The stock market's tolerance for a weak labor market depends on whether the monetary policy response is sufficient to offset growth risks. Given that the Federal Reserve is still concerned about inflation, and labor data, although poor, has not reached 'extremely bad' levels, there is still uncertainty about how much the Federal Reserve can cut rates." Which asset is expected to have higher returns in the next month after adjusting for volatility? Respondents expect that in the next month, stocks will have higher returns after adjusting for volatility compared to bonds. There is disagreement among respondents on whether the yield on US 10-year bonds will rise or fall in the coming weeks. However, most respondents believe that due to factors such as ongoing inflation, fiscal concerns, and the Federal Reserve's independence being compromised, the yield curve will steepen further this year.