Fed Rate Cut Expectations Intensify: Is the US Stock Bull Market Losing Its Foundation?

Recently, global financial markets have once again turned their attention to the Federal Reserve's monetary policy direction. As US economic data shows differentiated signals, market expectations for a Fed policy pivot continue to intensify. Meanwhile, after a prolonged period of gains, US stock markets have reached historically high valuation levels, leaving investors to wonder: has the foundation of this US stock bull market that began in 2009 begun to waver? This article will provide an in-depth assessment of the US stock market's future trajectory from multiple dimensions, including the Fed's interest rate policy outlook, valuation levels, earnings growth, and historical cycle patterns.

1. Fed Policy Pivot Expectations Continue to Intensify

Since the Federal Reserve launched its aggressive rate-hiking cycle in 2022, the US federal funds rate has climbed to its highest level in two decades. However, as inflation data gradually declines and economic growth shows signs of slowing, market expectations for Fed rate cuts have become increasingly strong.

According to the Fed's recent statements, policymakers maintain a cautiously optimistic outlook on the inflation trajectory while emphasizing the need to see more data confirming a sustainable decline in inflation. The CME FedWatch tool shows that markets expect the Fed to begin rate cuts this year, with the first rate cut anticipated in late Q3. This expectation has shifted significantly earlier compared to the beginning of the year, reflecting the market's strong anticipation for a monetary policy pivot.

From the economic data perspective, while the US labor market remains resilient, it shows marginal weakening. Manufacturing activity has been in contraction territory for multiple months, and consumer confidence indices have fluctuated. These signals have raised investor concerns that the economy may gradually slow, thereby reinforcing rate cut expectations.

Notably, a Federal Reserve monetary policy pivot is typically viewed as a key variable for global financial markets. Historical experience shows that interest rate policy inflection points are often accompanied by a significant shift in asset allocation logic, which has profound implications for the US stock valuation framework.

2. US Stock Valuations at Historical High Levels

Current US stock valuation levels serve as an important reference for judging market risk. Using the Shiller CAPE Ratio as a measure, the S&P 500's valuation has significantly exceeded its historical average. According to market data, this valuation metric is approaching peak levels seen during the internet bubble era, raising concerns among some investors about valuation bubbles.

From a valuation percentile perspective, the S&P 500 currently sits at the top end of its valuation range over the past twenty years. The Nasdaq Index, heavily concentrated in technology stocks, shows an even more pronounced valuation premium, with the "Magnificent Seven" tech giants' valuation levels significantly exceeding the broader market average.

However, elevated valuations do not necessarily mean the market is about to reverse. A low-interest-rate environment, robust corporate earnings, and continued stock buybacks are all important factors supporting high valuations. The key lies in determining whether current valuations are supported by fundamentals and whether such support can be sustained.

3. Earnings Growth and Fundamental Support Analysis

Corporate earnings are the fundamental driver of long-term stock market gains. Recent earnings season data shows that most US large-cap companies exceeded market expectations, particularly in the technology and communication services sectors.

According to market research, S&P 500 constituent companies maintained single-digit year-over-year earnings growth in the most recent fiscal quarter. While this represents a decline from its peak, it still maintains positive growth. Analysts expect that as cost pressures ease and demand resilience emerges, corporate earnings are likely to gradually improve in subsequent quarters.

From an industry perspective, ongoing investment in artificial intelligence continues to inject new growth momentum into the technology sector. Companies in semiconductors and software, in particular, have benefited from the AI wave, delivering particularly outstanding performance. The financial sector has benefited from interest rates remaining at elevated levels, with net interest income performing steadily.

Notably, corporate buybacks remain an important factor supporting stock prices. According to relevant data, US corporate buyback volumes have remained at elevated levels in recent years, providing liquidity support to the market. However, as financing costs rise and corporate leverage increases, the sustainability of buyback intensity warrants observation.

4. Historical Cycle Patterns and Bull Market End Signals

Reviewing US stock market history, each bull market's conclusion is often accompanied by the emergence of specific signals. Analyzing the common characteristics of major market corrections helps investors grasp potential risks in the current market.

From a historical cycle perspective, US stock bull markets typically end under the following circumstances: economic recession leading to a sharp decline in corporate earnings, excessive monetary tightening triggering a liquidity crisis, or valuation bubble bursts causing a reversion to mean valuations. The primary risks facing the current market include: an inflation decline pace that falls short of expectations, extending the duration of monetary tightening beyond expectations, and geopolitical uncertainties suppressing risk appetite.

Comparing current market conditions with those preceding the 2000 internet bubble and the 2007 financial crisis, there are certain similarities: elevated valuations, optimistic investor sentiment, and rising leverage levels. However, there are also notable differences: corporate earnings overall maintain growth, balance sheets are relatively healthy, and systemic financial risks remain low.

From a cycle perspective, this US stock bull market that began in 2009 has persisted for over fifteen years, experiencing multiple corrections but resuming its upward trajectory each time. What distinguishes this bull market from previous ones is that it received unprecedented support from monetary easing and fiscal stimulus. Now that monetary policy is gradually returning to normal, the market is at a critical juncture of testing.

5. Future Outlook and Investment Recommendations

Based on the comprehensive analysis above, the US stock market is at a critical stage characterized by both opportunities and risks. For the future trajectory, several aspects warrant attention:

First, the actual direction of Federal Reserve monetary policy will be the core variable driving market sentiment. If rate cuts materialize as expected and proceed at a steady pace, they will provide positive support for stocks; however, if inflation rebounds and rate cut expectations fail to materialize, the market may face downward pressure.

Second, the sustainability of corporate earnings is crucial. Analysts expect that if the US economy achieves a soft landing and corporate earnings maintain positive growth, US stocks are likely to continue their volatile upward trajectory; if recession risks rise, earnings downgrades will exert downward pressure on stocks.

Third, valuation digestion requires time. In the current high-valuation state, the market may be more sensitive to any negative news. Investors should pay attention to the alignment between valuations and earnings growth, avoiding excessive pursuit of high-valuation hot sectors.

From an asset allocation perspective, investors are advised to maintain balanced positioning and focus on quality assets with stable cash flows and reasonable valuations. While technology stocks benefit from the AI wave, their valuations are elevated, so consider diversifying into sectors such as financials, healthcare, and consumer staples. Meanwhile, closely monitor macroeconomic data and corporate earnings performance to timely adjust investment strategies.

For ordinary investors, it is advisable to adhere to long-term investment principles and avoid overreaction to short-term fluctuations. Dollar-cost averaging and portfolio diversification remain effective methods for navigating market uncertainty.

Conclusion

In the context of intensifying Fed policy pivot expectations, whether the foundation of the US stock bull market is松动 requires careful judgment based on multiple factors. While valuations are elevated, earnings still provide support; monetary policy pivots may bring liquidity improvement, but vigilance is needed against inflation recurrence and economic slowdown risks. Historical experience shows that no bull market lasts forever, but corrections often provide re-entry opportunities for long-term investors.

Investors should remain rational, focus on fundamental changes rather than short-term fluctuations, and seize market opportunities while managing risks.

Risk Warning: The above content is for reference only and does not constitute investment advice. Investment involves risks, and caution is advised. Investors should make investment decisions based on their own risk tolerance and consult professional investment advisors when necessary.