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Buckle up for a bumpy ride in the stock market, BMO Wealth Management’s CIO says. And he’s not the only one sounding the alarm

Buckle up for a bumpy ride in the stock market, BMO Wealth Management’s CIO says. And he’s not the only one sounding the alarm

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With inflation steadily fading from its four-decade high above 9% in June 2022, investors have been anticipating market-juicing interest rate cuts for a while now. The stock market has surged more than 10% this year largely on the prospect of lower borrowing costs—along with a little boost from the hype surrounding AI. But Yung-Yu Ma, BMO Wealth Management’s chief investment officer, warned Wednesday that investors should expect some turbulence ahead—and he wasn’t the only one sounding the alarm.

“The narrative of falling inflation and imminent Fed rate cuts that drove the stock market’s first-quarter gains is wobbling in the second quarter,” Ma wrote in emailed comments to Fortune. 

The veteran CIO said investors are worried about “delayed Federal Reserve rate cuts” that could push long-term bond yields higher, pulling more cash away from equity markets. As Gargi Chaudhuri, BlackRock’s chief investment and portfolio strategist, Americas, wrote in her 2024 outlook, “a cautious Fed, stronger growth, normalizing inflation, and a strong labor market may reward investors for owning bonds.”

Ma said oil’s rise is one of the factors that will continue to exacerbate U.S. inflation, arguing that it could push back the Fed’s interest rate cuts. WTI crude oil prices—a benchmark for the oil market—have surged roughly 20% from $71 to $85 per barrel this year. OPEC+ crude production cuts, geopolitical tensions in the Middle East that have forced cargo ships to reroute, and Ukrainian attacks on Russian oil refineries have all helped drive the increase.

The recent rise in oil prices comes on top of two hotter-than-expected inflation reports in January and February that led a number of investors—and Fed officials—to shift their interest rate cut forecasts as well. At the end of 2023, many investment banks were forecasting 100 basis points of interest rate cuts this year, with some even expecting the first cut in March. But now, the consensus view implies just three 25 basis point cuts. And Atlanta Fed president Raphael Bostic, a voting member of the Federal Open Market Committee that sets interest rates, said Tuesday that he’s anticipating just one rate cut this year, in the fourth quarter. However, at a Stanford University event on Wednesday, Fed Chair Jerome Powell reiterated his outlook on rate cuts, saying he expects several this year, although he emphasized that “the job of sustainably restoring 2% inflation is…

Click Here to Read the Full Original Article at Fortune | FORTUNE…

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