HANG SENG BANK: Next year, American companies will benefit from tax cuts and a more comprehensive sector profit recovery

According to the Zhitong Finance APP, the Federal Reserve has lowered the benchmark interest rate by 25 basis points to a range of 4.25%-4.5%. However, Federal Reserve Chairman Jerome Powell stated that due to stronger-than-expected performance in the economy, labor market, and inflation, it is anticipated that inflation may take longer to reach the 2% target. In response, Liang Junfei, Chief Investment Officer of Wealth Management at HANG SENG BANK, indicated that the bank believes U.S. companies will benefit from tax cuts and a more comprehensive sector earnings recovery next year. Of course, the impact of Trump's future tariff policies on U.S. inflation remains uncertain, but it is expected that his new policies will not aim to disrupt the U.S. economy and inflation. After a 20% surge in the U.S. stock market this year, valuations are no longer cheap, and future volatility is expected to be higher, making it crucial to diversify sector investments rather than just focusing on high-growth stocks.

Liang Junfei pointed out that the latest dot plot from Federal Reserve officials shows that they expect to slow the pace of rate cuts to two next year (compared to the previous expectation of four cuts in September), with another two cuts expected in 2026 (consistent with the September forecast). Long-term interest rate forecasts have slightly increased to 3%.

The market reacted with surprise, interpreting the Federal Reserve's sudden shift to a hawkish stance. The U.S. dollar index broke through the high level of 108 at the end of November on the night of the interest rate decision, while U.S. stocks underwent significant adjustments, with the Nasdaq experiencing the largest decline. The yield on 10-year U.S. Treasuries rose by 10 basis points to 4.5%, leading to a pullback in long-term bond prices.

Liang Junfei believes that, in fact, the Federal Reserve has previously underestimated the performance of the U.S. economy. The bank believes that the latest statements are primarily aimed at adjusting forecasts for the economy and inflation. When the U.S. economy and employment remain in good condition, the Federal Reserve should not rush to cut rates. The market's short-term sell-off following the interest rate decision is believed to be the result of previously overly optimistic expectations for a consistently dovish Federal Reserve.

She continued to state that Asian stock markets have relatively low valuations and face less pressure from adjustments. In the future, they are expected to benefit from economic stimulus policies in mainland China and strong trade performance in the region. She believes that during significant fluctuations in the stock market, bond assets can play an important role in stabilizing returns and overall investment risk. Future bond investments will focus on U.S. dollar bonds with a maturity of 3-6 years and the European bond market supported by a dovish European Central Bank