Fed rate cut may not happen but stocks may rally anyway

The S&P 500 rose 1.7 percent last week despite a 0.2 percent decline on Friday after hitting a record high on the previous trading session.

The S&P 500 fell on Friday after the US employment report showed that the economy gained 224,000 new jobs in June. That report lowered expectations for a 50-basis-point rate cut by the Federal Reserve in July although a 25-basis-point cut is still expected.

“A rate cut in July is still all but inevitable,” wrote Luke Bartholomew, investment strategist at Aberdeen Standard Investments.

However, a MarketWatch report suggested that that may not be accurate.

The report noted that “at the June Fed meeting the median forecast by Fed officials was for no rate cuts in 2019, and some voting members of the Fed’s interest-rate-setting committee, such as the bank’s vice chairman for supervision, Randy Quarles, have publicly taken aim at any justification for a rate cut”.

“The level of certainty [that the Fed will cut in July] is not justified,” John Vail, chief global strategist at Nikko Asset Management, was quoted as saying.

Still, PNC Financial co-chief investment strategist Jeffrey Mills thinks that a rate cut may not be necessary to sustain the stock market rally.

“You have about 50% of individual stocks in the S&P 500 now trading above their one month highs,” Mills said, suggesting that market technicals are in good shape.