Huabao Fund's international business department: Economic "soft landing" and AI iteration support the valuation of US tech stocks

The Federal Reserve announced on the 18th that it would unexpectedly cut the federal funds rate by 50 basis points, and US stocks, bonds, and commodities surged for half an hour after the decision was announced; but then the Fed's Chairman Jerome Powell's remarks at the press conference were hawkish, and US stocks, bonds, and commodities reverted and fell, forming an inverted V pattern. From the performance of US stocks by industry on the same day, energy and telecommunications services were slightly red, and the rest of the industries fell, with public utilities, daily consumer goods, and information technology industries falling the most. The former two are mainly risk-averse sectors under the trading of recession expectations in the previous period, and they are now experiencing a high adjustment, which is related to the relatively optimistic statement on the economic outlook after the Fed's monetary policy meeting. In the Fed's monetary policy meeting's decision to cut interest rates this time, we see that the description of job growth has been changed from "moderate" to "slow", and the inflation target has been weakened. More statements in support of employment have appeared. This time's dot plot shows that the target interest rate center this year is 4.4%, lower than the 5.1% in the June 2024 Fed's monetary policy meeting; the target interest rate center in 2025 is 70 basis points lower than the June 2024 dot plot, falling to 3.4%; it also lowered the inflation and core inflation forecasts for this year and next year and the economic growth forecast for this year and raised the unemployment rate forecast for this year. From Powell's remarks, he said that there was no preset path for the cut in interest rates and that it was still decided at each monetary policy meeting, continuing to emphasize policy flexibility; on the job market and economic growth, Powell believes that the current job market and economic growth are robust, and the job market is slightly looser than in 2019, similar to 2017-2018, and no signs have been seen indicating that the possibility of economic downturn is increasing. Powell mentioned "Keep it there" twice, once for the job market and another for the economic growth situation, meaning that the current economic situation and job market are good, and the Fed's 50 basis point cut in interest rates is intended to maintain the current situation, and the overall picture is still depicted as a "soft landing". We believe that the Fed's 50 basis point cut in interest rates this time is a preventive cut in advance, aimed at maintaining the current economic growth and job market, while maintaining policy flexibility, and we expect there will be two more 25 basis point cuts this year. After the overnight trading cut in interest rate expectations was fulfilled, we expect the US stock market may return to "soft landing" trading in the short term, and sectors such as biotechnology and real estate often perform well in "soft landing" cut in interest rate trading. In terms of technology stocks, the combination of economic "soft landing" and continuous iteration and upgrading of AI supports the valuation of technology stocks, so we continue to be optimistic about the technology stocks led by "Magnificent 7" to continue to perform well this year and next year.