---
title: "Jingshun Investment's Zhao Yaoting: The Federal Reserve may have already completed interest rate hikes, and small-cap and cyclical stocks are expected to outperform the broader market."
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/102033253.md"
description: "This is a dovish pause in interest rate hikes, although Federal Reserve Chairman Powell has retained the right to raise rates again, Zhao Yaoting believes that the Fed is likely to have completed its rate hikes."
datetime: "2023-11-09T03:03:03.000Z"
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  - [en](https://longbridge.com/en/news/102033253.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/102033253.md)
---

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# Jingshun Investment's Zhao Yaoting: The Federal Reserve may have already completed interest rate hikes, and small-cap and cyclical stocks are expected to outperform the broader market.

According to the Zhongtong Finance APP, Zhao Yaoting, the Asia-Pacific market strategist at Invesco, said that the Federal Reserve's decision to keep the federal funds rate unchanged at its current level is a dovish pause in rate hikes. Although Fed Chairman Powell has retained the right to raise rates again, the institution believes that the Fed is likely to have completed its rate hikes. Given that the market is beginning to assume that the Fed's tightening cycle has ended, the market may soon start to anticipate a recovery in the US economy in 2024 after a slight but brief landing. In this environment, the institution expects small-cap and cyclical stocks to outperform the broader market. Investment-grade credit and high-yield bonds are also expected to perform well. International assets, especially emerging markets, may outperform US assets.

The report points out that the Federal Reserve has decided to keep the federal funds rate unchanged at its current level. The wording in the Fed's statement has only changed slightly, including mentioning a tightening financial environment. This fully indicates that the Fed has realized that the recent rise in the 10-year US Treasury yield has to some extent eased the burden on the Fed. The Fed also announced that it will continue to maintain the current pace of quantitative tightening.

In response, the bond market has reacted significantly, with the yield on 2-year US Treasury bonds falling sharply to the lowest level since September 4. The US stock market has risen.

It is worth noting that during Fed Chairman Powell's press conference, the Atlanta Fed released its Nowcast, which shows that the expected GDP growth for the fourth quarter is 1.2%, far below the 4.9% growth in the third quarter. Nowcasts are expectations based on existing data and will change regularly, but the current downward revision in economic growth expectations is due to the lagging effects of monetary policy. Not only is the Fed's dovish stance favorable for Asian risk assets, but the US Treasury Department's decision has also pushed down long-term bond yields in the US, providing some breathing room for Asian currencies.

Zhao Yaoting believes that with the continued development of anti-inflation measures and the possibility of future rate cuts rather than rate hikes by the Fed, the yield on 10-year US Treasury bonds has likely peaked and may start to decline. This will undoubtedly provide more room for maneuver for Asian central banks, such as Indonesia and the Philippines, to keep rates unchanged instead of raising them.

Zhao Yaoting pointed out that this is a dovish pause in rate hikes. Although Fed Chairman Powell has retained the right to raise rates again, he believes that the Fed is likely to have completed its rate hikes. The key points are as follows:

Powell maintains the stance he took two weeks ago at the New York Economic Club: wage growth has significantly slowed down and is consistent with the 2% inflation target over time. Therefore, the institution is more convinced that the Fed will continue to hold steady at its December meeting, thereby ending the rate hikes.

However, he is trying to leave some room for further rate hikes, stating that he is not yet sure whether the restrictions on the financial environment are sufficient to counter inflation. Powell mentioned that monetary policy takes time to impact the economy, so the Fed has slowed its pace of rate hikes this year for further evaluation. This suggests a long-term pause in rate hikes (which, in hindsight, may indicate the end of the rate hike cycle).In terms of investment strategy, Zhao Yaoting expects the market to be volatile in the short term, especially considering the possibility of another government shutdown in the United States later in November. However, given that the market is starting to assume that the Federal Reserve's tightening cycle has ended, it is possible that the market will soon begin to anticipate a recovery in the US economy in 2024 after a slight setback and a brief landing.

In this environment, Zhao Yaoting expects global risk appetite to increase. Jingshun predicts that small-cap and cyclical stocks will outperform the broader market. Investment-grade credit and high-yield bonds are also expected to perform strongly. International assets, especially emerging markets, are expected to outperform US assets.

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