Wall Street Strategists Warn of Stock Rally Slowdown Amid Fed Rate Cut

Top strategists on Wall Street have cautioned that the record-breaking rally in U.S. stocks may lose momentum if the Federal Reserve cuts interest rates as anticipated this week. Strategists from Morgan Stanley, JPMorgan, and Oppenheimer Asset Management have warned that as investors shift their focus to potential economic slowdowns, market sentiment could turn from optimistic to cautious.

The expectation of a Fed rate cut has provided the latest boost to the S&P 500 index, which is currently near its all-time high. However, there is growing concern that a 25 basis point rate cut by the Fed on Wednesday may not be sufficient to address the slowing U.S. labor market. Investors are still assessing the impact of tariffs on inflation, which remains above the Fed's 2% target.

Michael Wilson of Morgan Stanley noted, "The primary short-term risk lies in the contradiction between lagging and weak employment data and the Fed's response, which may not meet the market's 'need for speed.'" Despite this, he still recommends buying on dips, with his most optimistic forecast being a 9% rise in the S&P 500 to 7,200 points by mid-2026.

JPMorgan strategists, led by Mislav Matejka, have indicated that the U.S. stock market has ignored weak indicators to reach multiple all-time highs. They suggest that this trend could reverse once the Fed initiates its first rate cut in 2025. "Once easing policies are restarted, the stock market may become temporarily more cautious and consider additional potential downside risks, thereby reassessing its currently overly optimistic stance," Matejka's team stated.

These warnings contrast with the prevailing bullish sentiment surrounding the U.S. stock market. Driven by the rise of large technology stocks, the S&P 500 has gained 12% this year. Institutions, including Deutsche Bank and Barclays, have raised their year-end targets for the S&P 500, citing strong corporate earnings and the artificial intelligence boom.

John Stoltzfus, chief investment strategist at Oppenheimer Asset Management, also noted that as long as the U.S. economy maintains its resilience, any post-Fed rate cut decline could be limited in both scale and duration. "If the Fed cuts rates by 25 basis points as widely expected, the market may experience some degree of decline due to this news," he said.