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Markets have shifted their perception of the "Trump put," a term suggesting presidential intervention to support stock prices, as concerns over tariff threats grow. However, Bank of America strategists assert that both the Trump administration and the Federal Reserve are prepared to act if equity prices decline significantly. Recent reports indicate a narrowing of tariffs, which may signal a commitment to stabilize markets amid economic uncertainty.
Bank of America analysts suggest that the concept of a "Trump put" reflects a belief that the president would intervene to stabilize markets during downturns, similar to the historical "Greenspan put" associated with the Federal Reserve. Despite initial market optimism following Trump's election, ongoing tariff threats have created volatility, with recent reports indicating potential adjustments to trade policies. The Fed's cautious stance on interest rates further highlights concerns about economic growth amid inflation pressures.
Swiss interest rates are experiencing an unexpected rise, with the 10-year swap rate climbing from 0.27% to 0.85% in three months, despite earlier predictions of further cuts by the Swiss National Bank (SNB). Factors influencing this shift include rising rates in Germany and potential fiscal policies that could impact the Swiss economy positively, although a looming U.S. recession poses risks. The SNB is expected to cut rates by 0.25% soon, but the current economic conditions suggest that a significant rise in long-term rates is unlikely.
Vanguard's 2025 outlook highlights a cautious stance on US equities compared to bonds, forecasting 2.1% GDP growth for the US versus 0.5% for the eurozone. The US economy's resilience is attributed to supply-side factors, while the eurozone is expected to implement sharper interest rate cuts, maintaining a "sound money" era. Despite strong fundamentals, US equity valuations raise concerns of potential overvaluation, contrasting with more attractive valuations in international markets.
US Treasuries have experienced a significant sell-off reminiscent of 1995, coinciding with the Federal Reserve's first interest rate cut since 2020. Two-year yields surged by 34 basis points following the Fed's decision, contrasting with the typical decline seen in previous rate-cutting cycles. This shift reflects traders' optimism about a potential soft landing for the economy.
Bank investors are optimistic that 2024 could mirror the successful year of 1995, when the Federal Reserve's rate cuts led to a significant banking sector rally. Currently, bank stocks are performing well, with key indices up over 19% and 21%, respectively. Historical patterns suggest initial sell-offs after rate cuts, followed by potential outperformance, but past cycles indicate that such gains may not last long.
Alan Greenspan
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