(Seoul=Yonhap Infomax) Kyung Pyo Hong – Morgan Stanley has analyzed that recent market volatility is raising the probability of interest rate cuts by the Federal Reserve (Fed).


According to Business Insider on the 24th (local time), Mike Wilson, Chief Investment Officer (CIO) and Chief U.S. Equity Strategist at Morgan Stanley, stated that "the sell-off centered on technology stocks is a factor strengthening the likelihood of Fed rate cuts next year."


Wilson explained that the Fed will ultimately provide a clear direction toward lowering rates.


This is because if the pace of rate cuts falls short of expectations, the Fed may have to respond to market backlash.


Wilson pointed out that investors' pushback against a weakening outlook for rate cuts has recently triggered concerns over liquidity, fueling the sell-off in equities.


He observed that declines in momentum stocks and cryptocurrencies could ultimately lead to financial stress severe enough to force the Fed to cut rates or deploy balance sheet policies such as quantitative easing (QE).


Wilson analyzed that volatility stemming from market liquidity issues could present buying opportunities.


He referenced the late-2018 sell-off that followed a more hawkish-than-expected Fed stance and rate hikes, noting that the Fed resumed quantitative easing the following year.


Morgan Stanley forecasts that the equity market will continue its upward trend next year, raising its 12-month target for the S&P 500 index to 7,800.


The firm also noted that a weakening labor market supports the case for rate cuts, while corporate earnings outlooks are improving.


"We are currently in a kind of tug-of-war, but ultimately, I believe the Fed will pursue a more dovish policy path," Wilson said.


kphong@yna.co.kr

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