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Investing.com - The environment for global equities is currently "favorable" despite a drop in stocks to begin the final month of the year, according to analysts at UBS.
In a note to clients, strategists at the brokerage including Mark Haefele and David Lefkowitz argued that stocks have historically "performed best" when the U.S. economy is not in a recession and the Federal Reserve is slashing interest rates.
Recent economic data has shown that the U.S. unemployment rate in September climbed to its highest level in almost four years, while a survey of consumer confidence fell to its lowest point since April. A Fed report also suggested a slight decrease in employment, with more of the central bank’s districts flagging freezes.
Yet, this "current soft patch" in the American economy is "likely temporary," and global growth "should accelerate" next year, the UBS analysts said.
Against this backdrop, hopes are high that the Fed will opt to cut interest rates by 25 basis points at the end of its next two-day meeting on December 9-10. Policymakers previously brought down borrowing costs in October and September, citing a choice to prioritize supporting a waning labor market over signs of sticky inflation.
Markets are now pricing in a roughly 87% chance of a quarter-point drawdown, according to CME FedWatch. Meanwhile, the odds of the Fed will keep rates unchanged at their current target range of 3.75% to 4%, which some officials have advocated for due to a relative dearth of fresh economic data because of a recent government shutdown, are only around 13%.
"[W]hether the Fed cuts this month or pauses until January would only change the timing, in our view, not the overall easing bias or the likely final destination for the fed funds rate. And that is what matters most for a
constructive medium-term investment outlook.
On Monday, the MSCI All Country World index slipped by 0.4%, pulled down in part by a selloff in Bitcoin and other cryptocurrencies and a jump in U.S. Treasury yields.
Still, the declines came after a turnaround in November, as investors shrugged off nascent concerns over the sustainability of frothy tech sector valuations and soaring expenditures on artificial intelligence infrastructure, focusing instead on the bets on an upcoming Fed rate reduction.
The benchmark S&P 500 index in the U.S. notched a seventh straight month of gains, while the MSCI All Country World average finished November 0.1% lower after having slumped by as much as 3.8%.