Morgan Stanley: Fed to cut rates twice this year, US economy and stock market continue to show "K" recovery

Mr. Kwok, a Hong Kong-based equity analyst at Charles Schwab, expects the US Federal Reserve to cut interest rates twice this year, or possibly start cutting in September, by a total of 50 basis points. He also favors longer-term bonds. At the same time, he also favors financials, energy and materials. Mr. Kwok also noted that the US economy and stock market are likely to continue to show a “K”-shaped recovery, with a significant divergence in the strength and weakness sectors.

Mr. Kwok said that a mild bond yield environment should be good for the stock market, but a sharp rise or fall in yields would cause significant volatility. He said he believes that two rate cuts would favor longer-term bonds, and also favors financials, energy and materials.

Meanwhile, Mr. Lin, a Hong Kong-based equity analyst at Charles Schwab, said that finding the right fixed income asset class mix would be key to achieving good performance. He stressed that for fixed income investors, the higher the income, the less the price volatility will affect the total return.

He believes that investing in a diversified fixed income asset allocation with better credit quality will help investors earn attractive yield on their bonds, and the total return may also deliver a net return. He also suggests extending the duration of fixed income investments to mitigate reinvestment risk. He also noted that investors should focus on better credit quality securities, such as bonds and investment-grade corporate bonds.