Interest rate policy, taxes and Nvidia: What's next for the US stock markets?

Joseph Stiglitz: US Federal Reserve has exaggerated

Joseph Stiglitz is a Nobel Prize-winning economist who believes that the US Federal Reserve (Fed) should cut interest rates by 50 basis points at its monetary policy meeting on September 17-18. At least, he would vote for it if he had the opportunity. “I think they have overdone it, and it (tapering – editor's note) would help both inflation and the labor market,” the economist believed.

“They raised interest rates to higher levels than ever before, and I think they put the economy at risk for a small benefit, probably ironically by increasing inflation. Because if you look closely at the causes of inflation, a big part of it was housing,” the economist said in an interview with CNBC.

He pointed out that it is important to combat the housing shortage, drive up inflation, and that high interest rates are doing more harm than good.
“I also think they have contributed to inflation. Even if their models don't work that way and they don't analyze things in as much detail as they should, the models they have focus on the weakness of the economy, which is why they should lower interest rates,” the economist said.

George Lagarias: Interest rate cut sends wrong message to the markets

George Lagarias, chief economist at the corporate services provider Forvis Mazars, takes the opposite view. “I don't see any need to cut interest rates by 50 basis points,” he said in an interview with CNBC. In addition, the economist said, a deeper rate cut could trigger panic on the stock markets and push market participants into a possible recession.

“A 50 basis point cut could send the wrong message to the markets and the economy. It could send a message of urgency that could become a self-fulfilling prophecy. “It would therefore be very dangerous to take such a measure without a concrete reason,” said Lagarias.

Mark Cuban supports the US government's tax change plan

US President Joe Biden's tax change plan is endorsed by his Vice President Kamala Harris, who is running for president. The plans call for a minimum income tax of 25 percent for more than 100 million people. For those who own property valued at more than $100 million. The controversial part of the proposal is that it would also apply to unrealized capital gains.

These are just the president's proposals, which would still need to be approved by lawmakers, but in the heat of the election campaign, they will be immediately linked to Ms. Harris as a potential president and will be hotly debated.

Mark Cuban, the billionaire owner of the Dallas Mavericks basketball club, is convinced that there will not be a capital gains tax in the USA. If such a plan were implemented, Cuban told CNBC, it would “poison the stock market”.

“I told them that taxing unrealized capital gains would dumb down the stock market and would be the best recruiting program for private equity investors.” “Companies won't go public because they risk being torn apart there,” Cuban says.
The candidate's own tax proposals during the election campaign are rather modest. In addition, Ms. Harrs does not expect any unrealized capital gains.
“All the conversations I've had make me believe that this will not happen,” the investor assured. “I speak to them three or four times a week, we have discussions, and they literally tell me: 'We don't want to go in that direction.'”

JPMorgan: Concerns about tariff war 2.0

JPMorgan analysts have changed their view on China's outlook, reducing the country's equity allocation in their emerging markets funds to neutral from overweight, given potential upheaval related to the US election and the Chinese government's weak support for the economy.

“The impact of a potential 'Tariff War 2.0' (with tariffs increasing from 20 percent to 60 percent) would be more significant than that of the first tariff war,” the bank's analysts told Bloomberg. “We expect China's long-term growth path to be structurally affected due to the shift in supply chains, the escalation of the conflict between the US and China, and ongoing problems at home.”

Donald Trump, the Republican presidential candidate of the United States, has proposed a 60% tariff on Chinese imports. “JPMorgan recommends channeling proceeds from the sale of China-related positions to other markets such as India, Mexico, Saudi Arabia, Brazil and Indonesia.”

Bank of America: Attractive buying opportunity for Nvidia shares?

The shortened trading week was unsuccessful for one of the most popular artificial intelligence (AI)-related stocks – Nvidia. However, analysts at Bank of America (BofA) believe that Nvidia's share price slump could present an “attractive buying opportunity.” The share price was weighed down by a lack of confidence in the company's prospects and by reports of Nvidia being subpoenaed by regulators, which the company later denied.

BofA calls the stock the best pick in the sector. The stock will face a challenge in the short term, but the long-term growth prospects for the company related to IoT development remain unchanged.

“The most important catalyst for a significant recovery in the stock is likely to be information from the supply chain in the next few weeks that will confirm the readiness to deliver Blackwell products.”

Goldman Sachs: Gold stands out

Goldman Sachs expects the rise in gold prices to continue into 2025. The bank predicts that the precious metal will reach a price of $2,700 per ounce by early next year, an increase of 7 percent from current levels.

“In a weaker cyclical environment, gold stands out as the commodity we expect most in the near term,” the bank’s analysts said.
They base this belief on three reasons. “We believe that the tripling of gold purchases by central banks from mid-2022 onwards, given fears of US financial sanctions and concerns about US debt, is structural and will continue,” they say.

The Fed's rate cuts “will bring Western capital back into the gold market,” Goldman Sachs added. This capital has not participated in the recent rally.
“Gold can add value to portfolios as a hedge against geopolitical shocks such as tariffs, dependence on the Fed and fears of US debt,” the analysts cite a third reason.

Investors are currently protected from a price drop by China's central bank, which has stopped its purchases at a higher price but is likely to return to the market if the price falls.