The news of the Federal Reserve's interest rate cut next Thursday is about to come out, with a high probability of a rate cut, and the market has three possible scenarios. A cut of fifty basis points would lead to a strong surge, breaking through 4000 points. A cut of twenty-five basis points would see an equal chance of rise or fall at 50%. An unexpected decision not to cut rates would lead to a significant decline, falling short of expectations.
The first scenario is a cut of fifty basis points. The market generally predicts a cut of twenty-five basis points in September. A cut of fifty basis points is obviously far beyond expectations. The Shanghai Composite Index would gap up significantly, breaking through 4000 points. Although the probability of an unexpected 50 basis point cut is low, it is advisable not to be short before next Thursday.
The second scenario is a cut of twenty-five basis points, which aligns with market expectations. Since early April, the Shanghai Composite Index has risen by 28%, the Shenzhen Component Index by 43%, and the ChiNext Index by 74%. The three major indices have risen significantly, basically fulfilling the expectations of a rate cut.
If there is a significant adjustment early next week, falling to around 3700 points, there is still room for the three major indices to rise. If there is a significant rise early next week, breaking through 3900 points and approaching 4000 points, a rate cut on Thursday would be a confirmation of good news, making a significant decline inevitable.
The third scenario is an unexpected decision not to cut rates. The gains of the three major indices have already fully reflected the expectations of a rate cut. Not cutting rates would clearly fall short of expectations, and all three major indices would decline significantly. The ChiNext Index would see the largest drop, while the declines in the Shanghai Composite Index and the Shenzhen Component Index would be smaller.
In summary, the probability of the Federal Reserve cutting rates, whether exceeding expectations or falling short, is relatively low. A significant decline early next week would be more favorable for the market, allowing for buying on dips. If there is a significant rise, it would be a confirmation of good news, and one should consider taking profits at high points.
New energy, solid-state batteries, gaming, and pharmaceuticals have greater upward potential. Bull market
In the market, most sectors cannot outperform the indices, so holding indices is a prudent choice. I wish everyone good luck next week!
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