Despite clear evidence of cooling in the U.S. labor market and broader economy, analysts at BCA Research believe the environment could remain favorable for equities.
“The economy is slowing, but not collapsing, and monetary easing is imminent — a backdrop that will benefit equities,” the team noted in a recent report to clients.
On Monday, U.S. stock futures edged higher as traders awaited this week’s inflation data, which could prove decisive for the Federal Reserve’s next interest rate move. The previous Friday, Wall Street’s major indexes pulled back after the release of softer-than-expected August payroll numbers, underscoring a gradual slowdown in hiring.
Seasonal trends may also weigh on sentiment. September has historically been a weaker month for equities, and investors are additionally grappling with policy risks such as President Donald Trump’s tariff stance, rising Treasury yields tied to fiscal concerns, and questions over whether the years-long boom in artificial intelligence may be nearing a plateau.
Still, the S&P 500 is holding close to record territory, with valuations across much of the market remaining elevated. That resilience has been supported by expectations that the Fed will respond to the cooling jobs data with at least a 25 basis-point rate cut at its September 16–17 meeting, with some investors betting on a half-point move from the current 4.25%–4.5% range.
In this context, BCA said it continues to be “strategically bullish,” projecting at least two rate cuts by the end of 2025. The firm is also monitoring momentum in generative AI adoption and corporate earnings “even amid numerous risks.”
“However, we are tactically cautious, as seasonality, elevated valuations, and stretched technicals present near-term headwinds,” the analysts cautioned.
BCA advised clients to keep a “neutral” stance on mega-cap tech stocks, maintain an “overweight” position in real estate to benefit from potential rate relief, increase exposure to “defensive” sectors such as pharmaceuticals and utilities, and view metals and mining companies as an “inflation hedge.”
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