The prospects for the Federal Reserve to cut interest rates are still uncertain; US stocks may face a major test this week!

Entering May, US stocks are back on track. While Federal Reserve officials are generally cautious about interest rate cuts, the market still sees recent weak US economic data as a strong signal to push for policy easing.

As risk appetite recovers, the VIX panic index, which measures market volatility, is approaching a low level in recent years. This week, the US will release key inflation data, which may once again influence the judgment of the Federal Reserve's interest rate cut point, thereby triggering a new round of market fluctuations.

Following Powell's statement last two weeks to dispel market concerns about interest rate hikes, job market data showed that the number of non-farm payrolls in April was far below expectations. The gap was the biggest since December 2021. The unemployment rate unexpectedly rose to 3.9%, higher than the forecast 3.8%; the number of jobless claims at the beginning of last week was also significantly higher than expected, rising to the highest level since August 2023, continuing to indicate that the job market is cooling down. These all strengthened the market's optimism about interest rate cuts later this year, driving the three major US stock indices to continue to rise last week.

At a time when anti-inflation progress seems to have stalled, there are growing signs that high interest rates have rift in the US economy. According to data released in early May, the initial value of consumer confidence in the US plummeted, and the unexpected rebound in inflation expectations for the next year raised market concerns that the US economy will fall into stagnation. The lower than expected consumer confidence data is a warning sign, indicating that strong consumer spending should not be taken for granted. Furthermore, inflation expectations are rising. This is a double blow to the Federal Reserve, as it paints a picture of “stagflation.”

Also, a study by the San Francisco Federal Reserve showed that the cash saved by American households during the pandemic has been exhausted. Both Amazon and Starbucks earnings reports last week showed that consumers are becoming more and more budget conscious, and consumer spending will slow from strong growth in 2023 this year.

Yet, as employment and consumption cool down, inflation remains stubborn. According to the results of a Gallup poll, Americans' confidence in Federal Reserve Chairman Powell is close to an all-time low, making him the “worst rated US Federal Reserve Chairman” in 25 years.

Against the backdrop of stubborn inflation, many policymakers are calling for higher interest rates for a longer period of time.

Federal Reserve Governor Bowman delivered the strongest hawkish speech last Friday. She believes that it is inappropriate for the Federal Reserve to cut interest rates in 2024; it will take longer for her to be confident that inflation will fall to the target.

Dallas Federal Reserve Chairman Logan pointed out that since he is not satisfied with the inflation data for this year, it is still too early to consider cutting interest rates.

Atlanta Federal Reserve Chairman Bostic said that although the pace of slowing inflation is also slow, he still believes the Fed will cut interest rates once this year.

Chicago Federal Reserve Chairman Goulsby said that there is not much evidence that inflation is currently stagnating at 3%.

In this context, traders are betting that the first interest rate cut by the Federal Reserve will be brought forward from November to September. According to data from the Chicago Mercantile Exchange Fed Watch Tool, the probability of cutting interest rates in September is about 50%, yet the price of cutting interest rates for the whole year is still less than two times.

Citadel founder Griffin said last week that if the Federal Reserve chooses to stay on hold in September, then it may cut interest rates in December. Citi, on the other hand, believes that unless the US falls into recession, the Federal Reserve may continue to implement downsizing until the second quarter of 2025, which will last longer than previously predicted.

And with the continuous adjustment of the Federal Reserve's interest rate cut expectations, this is undoubtedly a major event worth watching for investors.Interest rate cuts mean an increase in the supply of money and increased liquidity in the market, which undoubtedly provides investors with more investment opportunities.

The three major US stock indices continued to be strong last week, and the Dow reached the 40,000 mark once again on a daily basis. The S&P and NASDAQ have achieved three consecutive weekly increases, and investors' hopes for interest rate cuts have ignited risk appetite. According to FactSet data, the CBOE (Cboe) Volatility Index VIX fell below the 13 mark, reaching a new low in recent years.

At the same time, the overall performance of corporate financial reports is still impressive. According to Dow Jones market statistics, 77% of the 459 companies in the S&P 500 index made better profits than market expectations. Analysts currently expect net profit for US stocks to increase 7.3% year-on-year in the first quarter, a significant improvement from 5.1% at the beginning of last month.

The flow of funds showed that US equity funds had their first weekly inflow in six weeks. According to data provided by the London Stock Exchange (LSEG), investors made a net purchase of 1.14 billion US stock funds this week in the past week. Large-cap stocks continued to be the focus of capital chase. Recently, tech giants represented by Apple, Microsoft, Amazon, and Nvidia once again impacted historic highs.

However, the weak consumer sector may indicate the challenges faced by American households. Companies including McDonald's, Shake Shack, Starbucks, and KFC parent company Yum, reported weak sales growth in the first quarter.

Wall Street star analyst Mike Wilson (Mike Wilson), the chief US stock strategist at Morgan Stanley, believes that as the economy sends mixed signals, investors should buy defensive sectors such as consumer necessities. He said, “Overall, we can describe the consumer background as a fork between high end stability and low end weakness. If business activity metrics slow down further, we might even consider increasing some exposure to defensive sectors such as utilities and necessities.”

Carson Wealth Management wrote in its market outlook that judging from weak employment data and evidence from corporate executive reviews, consumers are cutting spending, which indicates that the economy may eventually slow down, but to what extent? It's still too early to say, but the bullish scenario is that the recent slowdown is enough to reduce inflation to the Federal Reserve's target, but not enough to hurt corporate profits.

The agency believes that the current dynamic is likely to increase as the market will face two key indicators of inflation and retail sales. As the S&P 500 is approaching its previous high, if inflation and consumption are booming, the market may once again face panic and short-term diving. Conversely, if both meet expectations, the market may rise slightly and fluctuate high.

Of course, there are no absolutely insured types of investment in the stock market; timing is everything; come in at the right time and come out at the right time. In addition to investing in ways to decide how to make money, traders must also try to avoid losing money. Furthermore, the Fed's impact on the market requires close attention to avoid making wrong decisions due to market speculation. Investors who are unfamiliar with technology should continue to wait for undervalued opportunities for high-quality products and buy them at the right time.

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Also, if investors are optimistic about this company and want to enter the market, they may wish to regularly monitor stock prices at the traditional brokerage firm Futu or BiyaPay, a new multi-asset trading wallet, and buy or sell stocks at the right time. Among them, Biyapay can not only deposit USDT to trade US stocks and Hong Kong stocks, but also supports depositing USDT to withdraw US dollars and Hong Kong dollars to a bank account, then withdraw fiat money to invest in Futu. This method can be said to be fast, has no quota limits, no deposit and withdrawal problems, and can keep an eye on stock market trends at any time.

Through this new type of brokerage, it not only makes it easier for investors to trade US stocks, but also boosts the market value of US stocks.

In short, it's important to be careful about timing. Moving too fast comes at a cost. The primary mindset for investing in stocks is patience. Patience means facing fluctuations, having a sense of normality, looking at it calmly, and not being moved. You should invest in cheap high-quality assets, not cheap junk assets.

I wish everyone a happy investment, a sharp rise in stocks, and financial freedom as soon as possible.