June 18, 2019 13:00:00: Expectation of rate cuts → There are limits to a stock rally! [From Tomoaki Sugimura's newsletter]
From the investment newsletter “Sugimura Tomo Investment Salon” by Sugimura Tomoo, provided by GogoJungle, here is a small excerpt from today’s dispatch.
There are limits to a stock rally driven by expectations of rate cuts. After all, isn’t that so? The evidence that a rate cut is needed is a sign of a weak economy. Likely, the Fed will move to cut rates in July. Monetary policy can change dramatically from rate hikes to rate cuts, a 180-degree shift. Behind this appears to be the stalled US-China trade talks (concerns about a slowdown in the economy).
In the United States, the yield on the 10-year Treasury note and the 2-year Treasury note have inverted, signaling an upcoming recession. Usually, after a long-term/short-term yield inversion, one watches for about a year, but this time a quick decision (a July rate cut) is likely. Perhaps President Trump’s pressure that “US rates are too high” is having an effect.
Regardless, the summer market (July–August) will unfold under uncertain external conditions. Domestically, the House of Councillors election is ahead. Until just a few weeks ago it looked “risk-free,” but with the opposition party fielding a unified candidate in the single-seat districts (32), and the 20 million yen controversy (pension issue) surfacing, the ruling party’s struggles cannot be avoided.
As a result, a sentiment of hesitation is likely to characterize trading. Well, the flow of individual stock picking remains unchanged… In terms of stock picking, a feature of a declining interest rate environment is the shift from capital gains to income gains. In other words, the strategy is to target “high dividend stocks.”
“Sugimura Tomoo Investment Salon” (Sugimura Tomoo)quoted.
While expectations for rate cuts in the United States are strong, signals of a stock rally seem unlikely due to anticipated economic slowdown and the ruling bloc’s struggles in the House of Councillors election. With individual stock picking taking precedence, high-dividend stocks are recommended in the rate-cutting environment. (Editorial Department)
