U.S. stocks hit new highs, but the long-short standoff is intense: Morgan Stanley is bearish on non-farm payroll data, while JP Morgan firmly believes that the interest rate cut expectations will continue the bull market

According to the Zhitong Finance APP, JPMorgan Chase's (JPM.US) strategy team has recently assessed that the cooling of the U.S. labor market may exert a suppressive effect on the stock market that exceeds the boosting effect of the Federal Reserve's interest rate cuts, potentially completely offsetting the positive impacts of the Fed's monetary easing policy. The team, led by Chief Strategist Mislav Matejka, believes that the macro environment supporting U.S. stocks is weakening. Although the Fed may initiate a rate-cutting cycle due to weak employment data and tariff-induced inflationary pressures, the impact of a weakening job market on investor confidence will be more significant. The team emphasized in their research report: "The negative effects of a weak labor market will be more dominant than the positive impetus generated by the Fed's easing of monetary policy."

Market focus is currently on a series of employment data to be disclosed this week, including job vacancy reports and key non-farm payroll data, as investors attempt to capture substantive signals of economic recovery in the U.S. Current trader expectations indicate that the probability of the Fed implementing at least two rate cuts before the end of the year has been fully priced in, while the possibility of a third rate cut has led to a nearly even standoff between bulls and bears in the market.

In contrast, Morgan Stanley's (MS.US) strategy team, led by Michael Wilson, has presented a different perspective. The institution believes that the market is likely to initiate a rebound before the expectations of rate cuts are realized. According to Morgan Stanley economists, the Fed is expected to implement a total of seven rate cuts by 2026, and this policy shift will provide significant support for the stock market performance in the second half of this year. Their strategy report noted: "Although the early digestion of rate cut benefits may lead to short-term volatility, historically, once the Fed officially enters a rate-cutting cycle, the stock market tends to maintain strong performance."

Last week, both the S&P 500 Index and the Nasdaq Composite Index closed at historic highs, rising approximately 3.5% and 4.1%, respectively.

The clash of viewpoints between the two major investment banks essentially reflects a divergence in the judgment of the turning point of the U.S. economy. JPMorgan Chase focuses on the chain reaction of a deteriorating job market on consumer spending and corporate profits, while Morgan Stanley pays more attention to the driving effect of policy shifts on valuation expansion. The current market is at a sensitive point in a data vacuum period, and the upcoming employment indicators will serve as a key litmus test to validate both sides' logic, with the results potentially reshaping investors' expectations regarding the Fed's policy path and economic outlook