The Federal Reserve is expected to cut interest rates by 25 basis points, with market reactions depending on whether the cut is dovish or hawkish. A 25bp cut is fully priced in, but a surprise 50bp cut or hawkish commentary could significantly impact markets. Long-term yields, especially in the US and Europe, are influenced by expectations of future rate movements, inflation risks, and macroeconomic signals, with market focus on the upcoming Fed meeting and ECB statements.
A global selloff in long-dated bonds continues, with yields reaching record highs in Japan, UK, and the US, driven by concerns over government debt and inflation, prompting a surge in gold prices to an all-time high as investors seek safe-haven assets.
Goldman Sachs strategists argue that the "Magnificent Seven" tech stocks, including Apple, Microsoft, Amazon, Alphabet, Nvidia, Tesla, and Meta Platforms, are currently trading at their cheapest valuation relative to the median stock in over six years. The next 12-month price-to-earnings ratio for these stocks has fallen to 27 from 34, while the S&P 500 has seen a narrower decline. The underperformance of these tech stocks can be attributed to the rise in long-term yields. However, the upcoming third-quarter earnings season is expected to bring 11% sales growth for the largest tech companies, compared to just 1% for the S&P 500 as a whole.
