A Fed interest rate cut is 'imminent', says JPMorgan's Gabriela Santos

Labor Market & Economic Outlook - The labor market is cooling, but not seeing massive layoffs or a spike in unemployment [1][2] - Expectation of 85,000 jobs added, bringing the 3-month average to approximately 54,000 [2] - Anticipation of a downward revision of the monthly hiring average by about 50,000 from March 2024 to 2025 [3] - The Fed is perceived to be more focused on the labor market than inflation [4] Interest Rate & Market Impact - A 25 basis point rate cut in September is largely priced in, with a total of 60 basis points priced in, targeting rates at 3% by the end of next year [5] - Rate cuts driven by economic slowdown concerns are viewed differently by the market than cuts due to perceived restrictiveness [6] - Further rate cuts prompted by a significant labor market slowdown may not be beneficial for equities [8] - Expectation that only cash-like rates will move lower, with a term premium increase in the 5-30 year range by 30 basis points in August [10] Equity Market Strategy - Cyclical stocks' rally is considered a "sugar boost" [9] - Focus should be on structural elements for equities [11] - Broadly constructive view on equities, with companies surprising on the upside with earnings [13] - Favoring Europe, Japan, and EMX (Emerging Markets ex China) [14]