The latest strategy report indicates which are the best bets, from its point of view, regarding the upcoming interest rate cuts.
The US bank gives the keys to avoid making mistakes with equities in moments where it is debated whether the Federal Reserve (Fed) will the interest rate finally drop and when. Likewise, it is estimated that the first central bank to begin the monetary flexibility cycle will be the one led by Christine Lagarde, the European Central Bank (ECB)which meets next June 6.
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“If bond yields fall as economic growth moderates, leadership is likely to fall to the defensive values“JP Morgan analysts commented and added that “so far in the second quarter, defensives are ahead in both the US and Europe.”
However, experts explained that there are also “Other considerations” that investors should take into account when setting up their portfolios, such as “the ratings -cyclicals tend to trade higher compared to defensive ones-, results previous -the streak of cyclicals in the last 18 months has opened a gap with the PMIs, which has not yet been closed- and, finally, the recent results weakest of the cyclical sectors compared to the defensive ones”.
From the same report they reported that At the beginning of April they stated that utilities and the real estate sector, in particular, “would probably rebound, regardless of the evolution of bond yields”and they assured that they are still “optimistic” about them. “We continue to bet on a combination of defensives and raw materials”said the experts at the US bank.
Fed: what data impacted the market
Benchmark U.S. Treasury yields fell to two-week lows on Mondayfollowing data showing that manufacturing activity slowed for the second consecutive month in May, raising expectations that the Federal Reserve will cut interest rates this year.
The manufacturing sector weakened as new orders for goods recorded their biggest decline in almost two yearswhile a measure of input inflation retreated from the highest level since mid-2022.
US construction spending also unexpectedly fell for the second consecutive month in Aprildue to the decline in non-residential activity.
Traders are assessing when the Fed is likely to start cutting rates as inflation remains above its 2% annual target.
Friday’s personal consumption expenditure (PCE) price index for April showed that price pressures stabilized in the month while consumer spending slowed, driving bets that the Fed could cut rates as soon as September.
