Do you think a rate cut will save the bull market? Think again, Stiefel said. “The Fed rate cut is a red herring,” Stifel strategists said in a note to clients. “We are skeptical of the current consensus that ‘Fed rate cut = buy stocks.'” The market expects the central bank to cut rates in a few weeks. Cutting the benchmark interest rate by at least a quarter of a percentage point within 2 months could put pressure on stocks. However, Stiefel believes that a major phenomenon in the bond market is causing trouble in the future, and no matter what actions the Fed takes in the future, it will put pressure on risk assets. Earlier this week, the benchmark 10-year Treasury yield edged higher than the 2-year note for the first time since June 2022, reversing a classic recession indicator. An inverted yield curve has heralded most recessions since World War II. Curve normalization typically occurs before a recession hits, which means the U.S. may still be in some tough economic troubles ahead. “Economic slowdowns have always been preceded by a bottom in the 10- to 2-year ‘bull steep’ yield curve,” Stifel said. “Historically, bull steep yield curves have led to the weakest equities,” the Wall Street firm suggested. Clients took defensive positions, such as buying penny stocks in the consumer staples and healthcare sectors. Specifically, stocks in the biotech, life sciences, household products, and food and beverage industries tend to outperform if trends in the bond market continue. The S&P 500 is down more than 2% so far this week as worries about the economy intensify. Investors are anxiously awaiting Friday’s jobs report to further assess the outlook.
