The recent soft inflation report has boosted investor optimism, causing a notable change in market sentiment. A new survey shows that 93% of fund managers expect the Federal Reserve to cut short-term interest rates within the next year—the highest expectation in nearly 25 years. This widespread belief suggests that investors see rate cuts as essential for sparking economic growth and reviving market momentum, which has faced difficulties since early August.
Despite recent market ups and downs, including a weak jobs report and increased recession worries, the overall investor outlook remains cautiously positive. The survey reveals that 60% of respondents now expect at least four rate cuts over the next year. This shift follows a quick recovery in the market after recent drops, reflecting investor confidence in the Fed’s potential actions to stabilize the economy. Futures markets are also predicting a rate cut at the Fed’s September meeting, though it’s uncertain whether this will be a quarter-point or half-point reduction.
Investors are taking a more cautious approach, as shown by a decrease in the percentage of fund managers with heavy stock positions and a slight increase in cash reserves. The survey also notes growing concerns about global economic growth, which are at their lowest in eight months. Despite these worries, most investors still expect the Fed to manage a "soft landing," showing measured optimism about future economic stability. Overall, the survey, which includes responses from 220 fund managers managing $590 billion in assets, indicates that while investors are adjusting their risk strategies, they remain confident in the Fed’s ability to guide the economy towards recovery.
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