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JPMorgan’s David Kelly said recent data suggests the Fed will cut rates twice this year.
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The bank’s chief global strategist predicted the Fed would cut rates in September and December.
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However, he warned that shares are expensive and investors should be cautious about adding exposure at high prices.
The Federal Reserve is poised to cut interest rates twice in 2024 as data shows the economy is gradually slowing, but bullish investors should be cautious as high stock prices mean there’s a risk of a big correction, according to David Kelly of JPMorgan Asset Management.
The chief global strategist predicted the central bank will start cutting interest rates at its September policy meeting, with further cuts likely in December.
He pointed to the latest jobs report, which showed the unemployment rate rose to 4.1 percent, the highest level in nearly three years, adding that this was made possible by the weakening economy.
But a rate cut would not be a signal for investors to rush into the stock market, Kelly said, pointing out that stock prices have soared as the S&P 500 has broken record after record this year.
“Right now is a time when you have to be pretty cautious because valuations are high. There was a big rally last year and this year,” Kelly told CNBC on Friday. “Overall, these markets are expensive and sooner or later there’s going to be a big correction. What I know from past corrections is that you don’t want to be invested in the most expensive things during a correction.”
The S&P 500 is up 17% so far this year, thanks in large part to enthusiasm over the Fed’s interest rate cuts and the market’s unabated excitement over artificial intelligence, but most of the benchmark index’s gains have been driven by large tech stocks.
“In a way, there is a bubble in the market because the economy is so stable, but stock prices continue to rise. I think now is a time when you need to be very careful to diversify and not be overinvested in the most expensive stocks,” he added.
Kelly’s stance echoes that of other bearish forecasters who have warned that stocks look overvalued and that a correction is on the way. Legendary investor John Hussman says that by some measures, the S&P 500 looks more overvalued than it has been since before the 1929 crash, and that a 70% drop in stock prices wouldn’t be a surprise.
Read the original article on Business Insider
