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Indices rose due to strong economic data and a significant interest rate cut from the Federal Reserve.
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However, as markets look for a soft landing, potential shocks pose a greater risk to investors, says David Kelly.
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He says Americans should reduce risk and put money away from growth stocks and toward value.
Strong economic data and a big interest rate cut last month fueled bullish sentiment, but investors should be wary of adding more risk, according to David Kelly of JPMorgan Asset Management.
The promise of a soft landing has encouraged Americans to invest in riskier assets exactly when they shouldn’t, says the firm’s chief global strategist.
“I will say that while I think this is positive for the stock market, I’m increasingly concerned about the fact that the stock market continues to price in a soft decline,” Kelly told Business Insider.
He said that with the rise in market prices in Soft landingvaluations rise, which means that any shock to the market could cause asset prices to fall.
“The markets have risen a lot and become more distorted, and because they are more distorted and at higher valuations, they are more dangerous,” he said.
At the same time, the wealth of the average American has declined rose. According to Federal Reserve data, the total wealth of American households has increased by about $50 trillion in the past five years. This means that many middle-income families who couldn’t afford retirement just a few years ago now can, Kelly says.
As a result, investors shouldn’t take on more risk than they need to, he says.
“They have to limit risk. There’s no need to increase risk if you have enough money to do the things you want to do,” Kelly said.
Kelly has been particularly cautious about keeping money tied to high-growth stocks.
“At the same time that I think logic dictates that investors should be a little risk averse, they are passively allowing risks to pile up on the table,” he said.
Instead, he recommended investors rebalance their portfolios, channeling money from growth stocks toward value stocks, international stocks, and alternatives.
Kelly says the market has been heading toward a soft bear for some time, and Friday’s blockbuster jobs report only reinforced that case. The report showed a decline in the unemployment rate from 4.2% to 4.1%, with the addition of 254,000 non-farm jobs, exceeding previous estimates of about 150,000.
Strong reporting all but Shattered hopes For another big rate cut next month, with investors quickly reducing the odds of a 50 basis point move from 33% to less than 1%, according to… CME FedWatch tool.
However, Kelly acknowledged that the data leaves room for error, so it is possible that hiring last month looked weaker than reality and this month looked stronger than reality.
Regardless, he says the report confirms that the United States has a healthy and strong labor market and that the economy is on a “very nice, smooth downward path.”
Kelly expects the Fed to cut an additional 50 basis points during its next two meetings, and another 100 points next year.
Back in August, when A A sudden increase in unemployment raised a Huge global salesThe Fed needs to, Kelly told Business Insider Make more efforts to instill her confidence In economics.
Now, he says the Fed must continue to show its confidence, and show that it can take its time cutting interest rates.
“The more the Fed appears to be taking its time and not being overly concerned, the more it will do to support confidence,” he said.
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