The Fed’s interest rate cut has touched the nerves of global investors. Do you remember the performance of A-shares after the Federal Reserve launched a rate cut on September 19, 2024? After the Federal Reserve announced the interest rate cut, a large amount of capital inflows began to flow into the A-share Hong Kong stock market, which pushed A-share Hong Kong stocks out of a round of accelerated rise.
Taking the A-share market as an example, from 2736 points on September 20, 2024 to 3674 points on October 8, 2024, in less than two weeks, the A-share market achieved an increase of nearly 1,000 points. During the same period, the Hong Kong stock market rose by more than 5,000 points from its low point, and emerged from a bull market with one-sided rise.
The sharp rise in the A-share and Hong Kong stock markets in September last year, and the Federal Reserve’s interest rate cut was just a fuse. Behind the sharp rise in the stock market, it is also related to many influencing factors. For example, the positive improvement of the policy environment, the bottoming out and rebounding of the capital environment, etc. However, it is undeniable that the Fed’s interest rate cut will have a greater impact on emerging market stock markets.
On September 19, 2024, Beijing time, the Federal Reserve announced a move to lower the federal funds rate by 50 basis points, which is also the first rate cut since mid-March 2020. The first interest rate cut after several years is indeed of extraordinary impact, and the stock market, which is highly sensitive to interest rates, naturally has a significant reaction.
The Federal Reserve’s interest rate cut in the second half of 2024 brought an accelerated rise to emerging market stock markets. However, because the Federal Reserve’s interest rate cuts are less than market expectations, and the US federal funds rate is still in the range of 4.25% to 4.50%, in the context of the United States maintaining high interest rates, more funds are still willing to stay in the United States, and funds flowing from the United States to other emerging markets are still relatively limited.
Since 2025, the Federal Reserve has missed the opportunity to cut interest rates many times, and the number and frequency of the Federal Reserve’s interest rate cuts this year are also far lower than market expectations. However, in September this year, there may be another opportunity for the Federal Reserve to cut interest rates.
Whether it comes from the predictions of well-known investment banks such as Goldman Sachs and JPMorgan Chase, or the Fed’s multiple statements and analysis, they all have optimistic expectations for the Fed’s interest rate cut in September this year. For example, JPMorgan Chase predicts that the Federal Reserve will cut interest rates three times from September 25 to the end of the year. At the same time, the Federal Reserve’s Bowman also supports three interest rate cuts this year and calls for a rate cut starting in September this year.
Will the Fed cut interest rates as scheduled in September this year? According to the current market forecast analysis, the probability of the Federal Reserve cutting interest rates in September is relatively high, and as time gets closer to September, the market’s expectations for the Federal Reserve’s interest rate cut are stronger. If the Fed takes the action to cut interest rates in September this year as scheduled, will the A-share and Hong Kong stock market accelerate the pace of the bull market?
The Federal Reserve entered a new round of interest rate cuts, which tends to have a positive positive impact on emerging market stocks. However, the impact of the Fed’s interest rate cut this time on A-shares and Hong Kong stocks may not be as strong as the market influence in late September last year.
In mid-to-late September last year, the Fed took a 50 basis point cut, and its first rate cut since mid-March 2020. The first interest rate cut after more than four years, and the single interest rate cut is relatively strong, which has a significant impact on the market.
In comparison, if the Federal Reserve cut interest rates as scheduled in September this year, the market judged that the extent of the interest rate cut this time may be 25 basis points, and the single interest rate cut is not as strong as the rate cut in September last year. Moreover, the market has actually expected the Fed’s interest rate cut this time, but the Fed is good at expectation management. When the favorable factors are implemented, the impact on the market becomes relatively limited.
Another point is that in mid-to-late September last year, the valuations of A-shares and Hong Kong stock markets were very cheap. A year later, the valuations of A-shares and Hong Kong stock markets have increased significantly, and they are in the historical bargaining peak area. It is difficult to accelerate the rise again at this position.
