US markets will lose steam even as Fed signals rate cuts, survey shows

More pain is seen for the bond market: the median call in the survey was for the 10-year Treasury yield to increase to about 4.5% from just under 4.3% currently.

Meanwhile, the US dollar may crack, according to the survey. Only 18% of respondents see the Bloomberg Dollar Spot Index climbing from current levels, while more than a third expect it to stagnate and the rest anticipate a decline. The index has climbed about 2% in 2024, unwinding much of its 2.7% decline last year.

The yen is expected to lead the charge against the dollar after it pulled back from close to the weakest since 1990 in the wake of the Fed meeting. Japan’s currency was forecast to outperform by 43% of the respondents, more than double the next-most popular picks — the euro and the British pound.

The yen sank to touch 151.82 per dollar before the Fed, and is still down almost 7% in 2024 after the Bank of Japan committed to maintaining accommodative policy settings on Tuesday even after carrying out Japan’s first rate hike since 2007.

Treasuries, the world’s biggest government bond market, have lost more than 3% so far this year as traders were forced to unwind bets on rapid, steep Fed cuts.

The Fed held steady for a fifth-straight meeting as Chair Jerome Powell said higher-than-expected inflation figures at the start of the year didn’t change the broader story that price gains were slowing on a “sometimes-bumpy road.”

That affirmed expectations for the Fed to stay the course on rate cuts later this year, which buoyed tech megacaps and helped drive US stocks to a fresh record on Wednesday.

Some 55% of the Pulse survey respondents said they expect stocks to outperform bonds once the Fed does start reducing rates, with a slightly smaller share saying the opposite.

The MLIV Pulse survey was conducted among Bloomberg terminal clients immediately after the Fed decision by Bloomberg’s Markets Live team, which also runs the MLIV blog. Sign up for future surveys here.