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Stocks in the United States will outperform the country’s government and corporate bonds for the rest of this year as the U.S. Federal Reserve keeps cutting interest rates, the latest Bloomberg Markets Live Pulse survey shows.

Exactly 60 per cent of the 499 respondents said they expect U.S. equities will deliver the best returns in the fourth quarter. Outside the U.S., 59 per cent said they prefer emerging markets to developed ones. And as they ramp up these bets, they’re avoiding traditional ports of calm, such as U.S. Treasuries, the dollar and gold.

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It’s a risk-on view that dovetails with bullish calls emerging on Wall Street following the Fed’s half-point rate cut in September. China’s biggest stock rally since 2008 after Xi Jinping’s government ramped up economic stimulus also helped boost the bullish attitude.

“The biggest challenge that the U.S. economy has been facing is actually high short-term interest rates,” Yung-Yu Ma, chief investment officer at BMO Wealth Management, said. “We’d already been leaning into risk assets and leaning into U.S. equity” and “if there were a pullback, we would consider even adding to that.”

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The Fed slashed its benchmark rate from the highest level in two decades on Sept. 18, and the median official forecast projected an additional half-point of easing across the two remaining 2024 meetings in November and December.

‘Room to cut’

The MLIV Pulse survey said 59 per cent expect the Fed to deliver quarter-point cuts at each of those two gatherings, but 34 per cent anticipate steeper reductions in that period, totalling three-quarters of a point or a full point. That’s more in line with swaps traders, who are pricing in a total of around three-quarters of a point of cuts by year-end.

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Investor confidence that the Fed can engineer a soft landing has grown, with the S&P 500 index on its way to posting a gain in September — historically the gauge’s worst month of the year — for the first time since 2019.

“The Fed has a lot of room to cut, as do many other central banks,” Lindsay Rosner, head of multi-sector investing at Goldman Sachs Asset Management, said. “That sets up a good backdrop for the economy in the U.S., in particular. That doesn’t erase the tightness of valuations, but makes them more justifiable.”

Asked which trade is best to avoid for the rest of the year, 36 per cent — the biggest group — cited buying oil. Crude has slumped because of concern that rising production outside of the Organization of the Petroleum Exporting Countries and its allies will create an oversupply next year. The runner-up was buying Treasuries, at 29 per cent.

Treasuries are still on course to gain for the fifth straight month. And while rate cuts can buoy bonds, there are plenty of questions about fixed income given the diverging views around how quickly the central bank will drop borrowing costs, with the job market proving resilient. Investors are particularly wary of long-term Treasuries, given the risk that inflation could heat up again as the Fed eases.

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The survey also showed limited enthusiasm for the U.S. dollar, another traditional haven asset. Eighty per cent of respondents expect the greenback to end the year either roughly flat or down more than one per cent. The Bloomberg dollar spot index is up less than one per cent so far this year.

The MLIV Pulse survey was conducted Sept. 23-27 among Bloomberg News terminal and online readers worldwide who chose to engage with the survey, and included portfolio managers, economists and retail investors.

Bloomberg.com

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