[Click eStock] "September FOMC, US Stock Market Preference Expected to Increase"

Daishin Securities analyzed on the 19th that in a phase where the U.S. economy remains robust, the Federal Reserve's (Fed) interest rate cuts are a positive factor for the stock market direction.

Moon Nam-jung, a researcher at Daishin Securities, explained, "The heightened risk of a U.S.-origin recession and the chaotic financial market turmoil following the July Federal Open Market Committee (FOMC) meeting are ultimately the aftereffects of the Fed's delayed interest rate cuts."

He added, "The conditions for interest rate cuts, where the real policy rate exceeds the real neutral rate, became visible last year and it has surpassed the average period taken from the Fed's pause in rate hikes to the implementation of rate cuts since 1995."

He emphasized, "Ahead of the September FOMC, the reassessment of a U.S. recession through early September corporate sentiment indicators led to the acceptance of the Fed's rate cut as a foregone conclusion," adding, "The financial market's indirect reflection of hopes for a big cut (50bp) was evident."

Researcher Moon analyzed, "After the September FOMC, controversy over the direction of the U.S. stock market intensified," and stated, "There are predictions of both stock market declines due to insurance-type rate cuts considering a U.S. recession, and stock market rises due to rate cuts as part of monetary policy normalization based on economic indicators."

He noted, "Since 1995, there have been five phases of rate cuts, categorized as 1995 and 1998 during economic expansions, and 2001, 2007, and 2019 during recessions," and forecasted, "Considering the U.S. economic situation currently in its 52nd month of expansion as of August this year, the direction of the U.S. stock market (S&P 500) after the September rate cut will likely follow the footsteps of 1995 and 1998, when rates were cut during economic expansions."

Furthermore, he explained, "At that time, the S&P 500 rose by 45.2% and 36.0%, respectively, and since rate cuts are a process of normalizing abnormal monetary policy ahead of normal economic conditions, preference for the U.S. stock market is expected to increase."