But with the Fed’s new monetary easing cycle comes renewed risks of a bubble forming in parts of the market, Bank of America strategist Michael Hartnett told Business Insider in a report seen by Sky News Arabia’s Economy website.
Last Wednesday, it was reduced. US Federal Reserve The federal funds rate is expected to rise by 50 basis points. The market now expects 250 basis points this year and next, which would help drive S&P 500 earnings growth of 18 percent by the end of 2025, according to consensus forecasts.
Growth “can’t get much better than that in terms of risk,” Hartnett said. But he added that meant investors would have to chase the stock market as bubble risks resurfaced.
Hartnett had previously warned of a potential tech bubble as investment in AI surges. In February, he said a “budding bubble” in AI was “growing” and could drive market gains if monetary policy eases.
With more investment in artificial intelligence Easing policy, Hartnett says the best way to position portfolios is to allocate to bonds and gold, which protect against growth and inflation risks.
“Use the risk premium to buy dips in bonds and gold, because accelerating recession and inflation are becoming very unfashionable,” he added.
Hartnett has signaled his bullish view on bonds before, saying in May that he saw “huge” growth in fixed income in the second half of the year. At the time, he said 30-year Treasuries were the best hedge against weak growth.
Gold as a safe haven
In this regard, financial markets expert Hanan Ramses indicated in statements to the “Sky News Arabia Economy” website that many investors are betting on gold remaining a major safe haven in the coming period, especially after the Federal Reserve’s decision to cut interest rates by 50 basis points. She explained that this cut enhances the attractiveness of the precious metal in light of the current economic fluctuations, as investors tend to resort to gold as a means of protecting their wealth from declining currency values or rising inflation rates.
However, Ramses pointed out that some countries prefer to invest in US Treasury bonds in the long term, considering them a more stable and profitable investment option in the future (..) which reflects their confidence in the stability of the US economy, as well as their desire to strengthen trade and investment relations with the United States.
Ramses added that the divergence of views among investors is partly due to the effects of high interest rates in the past period, which raised the cost of financing and led to instability in global stock market trading. With the Federal Reserve starting to cut interest rates, markets witnessed an improvement in investment conditions, making options such as gold more attractive. She pointed out that gold has achieved unprecedented historical highs in this context, which enhances its position as one of the most prominent safe havens in times of economic crises.
Last week, gold rose above $2,600 during Friday trading for the first time, continuing a rally supported by bets on further interest rate cuts in the United States and escalating tensions in the Middle East.
Spot gold rose more than 1 percent to $2,622 an ounce on Friday after hitting a new all-time high of $2,625.76, while U.S. gold futures rose 1.2 percent to $2,646.20 at settlement.
Gold prices rose after the Federal Reserve began easing monetary policy by cutting interest rates by half a percentage point.
Federal Success
For his part, financial market expert, Mohamed Saeed, told the Sky News Arabia Economy website that the Federal Reserve took a pivotal step in the context of its fight against inflation, which reached record levels over the past two years, through a long path of monetary tightening. He pointed out that this is the first time that the Federal Reserve has changed its direction towards easing monetary policy.
He pointed out that cutting interest rates by 50 basis points in the last meeting was the best decision for the economy compared to cutting by 25 basis points, explaining that the real importance lies in the Federal Reserve changing its course, which was reflected in the returns in US dollars and prompted investors to think about directing their investments towards gold Or bonds.
Saeed explained that this shift towards monetary easing supports the economy and enhances economic growth and recovery, stressing that gold and bonds are strong investment options, as gold has also benefited from geopolitical tensions and economic uncertainty, which has led it to rise to historical levels. However, he advised at the same time to diversify the investment portfolio by adding stocks alongside bonds and gold, considering diversification as one of the basic principles of investment.
The financial markets expert pointed out that the interest rate hike was harming many economic projects, which negatively affected growth rates in several sectors. However, he stressed that if the Fed continues on the path of monetary easing, all sectors will benefit from the lower cost of financing, especially the real estate sector, explaining that the cost of real estate financing was high during the period of monetary tightening, but this change will provide an opportunity for real estate projects and large companies such as Intel that need financing to restructure.
Saeed concluded his statements to the Sky News Arabia Economy website by praising the performance of the Federal Reserve, which succeeded in addressing the problems of the American economy with a high degree of professionalism. He pointed out that it was able to control inflation without pushing the economy into recession, and that the move towards monetary easing enhances confidence in the future of the economy.
