JPMorgan says Fed rate cuts won’t be the rocket fuel for stocks some expect

• The timing of the stock boom is not guaranteed after the Fed cut rates, JPMorgan said.

• If the Fed cuts in response to weaker growth, the positive impact may be reduced, the firm wrote.

• Other analysts are more optimistic about the economy and the positive effect on equity of rate cuts.

Interest rate cuts are on the horizon, but investors who think that will generate a fresh dose of momentum for stocks could be wrong, JPMorgan said.

In a new research note, JPMorgan strategists led by Mislav Matejka said that any rate cuts by the Federal Reserve will be at least partly in response to the slowing economy, which could neutralize the positive effect on stocks.

“The Fed will begin to ease, but more in a reactive manner and in response to weakening growth — this may not be enough to drive the next step higher,” strategists led by Mislav Matejka wrote on Monday .

In addition, JPMorgan wrote: “We’re not out of the woods yet, September was a seasonally challenging month for stocks.”

The company’s view contrasts with more optimistic forecasts held by those who believe a post-rate-cut rally is in the cards.

For example, a Wells Fargo analyst recently indicated that stocks are poised for a rally not seen in three decades once Fed policy eases.

According to Paul Christopher, head of global investment strategy, today’s market has strong parallels to that of 1995 – and with proactive Fed tapering amid steady GDP strength, further growth is likely.

Meanwhile, veteran strategist Jim Paulson suggested the Fed’s pivot would open the door to a “new bull market.”

“They opened up a lot more positive forces for the stock market that just weren’t there,” he said, speaking after Fed Chairman Jerome Powell confirmed interest rate cuts were likely during the Jackson Symposium Hole from last month.

Once the Fed tapers, those forces include accelerating monetary growth and falling bond yields, propelling private sector confidence higher, Paulson said.

Friday’s nonfarm payrolls report will be the next major input for the Fed, which is currently expected to cut rates by 25 basis points at its policy meeting in late September.

A particularly weak report could reignite calls for a deeper rate cut in September – possibly as much as 50 basis points – as well as an accelerated pace of cuts ahead of elections in November and the end of the year.

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