Charles Schwab: "25 basis points" is "most favorable" for financial assets, a significant rate cut may trigger panic

According to the Zhitong Finance APP, Omar Aguilar of Charles Schwab Corp. stated that if the Federal Reserve cuts interest rates by 25 basis points next week, it would be the most favorable scenario for financial assets; a larger cut could raise concerns among investors.

Aguilar, CEO and Chief Investment Officer of Schwab Asset Management, pointed out at the "Future Proof" conference held in Huntington Beach, California: If policymakers maintain the current borrowing costs, considering that a "rate cut" has already been largely priced in by the market, Wall Street may react "quite negatively"; conversely, if the Federal Reserve takes aggressive action—cutting rates by 50 basis points—investors may interpret it as a signal that the economy is in trouble.

"Therefore, a 25 basis point cut seems to be the most appropriate choice," he said in an interview, "This is the general expectation of the current market, and I believe it will be seen as a 'fine-tuning' of the current monetary policy."

Currently, traders have fully priced in the "Federal Reserve cutting rates by 25 basis points at the policy meeting on September 16-17." Last week's employment data was weaker than expected, prompting some Fed watchers to speculate that officials might consider a 50 basis point cut this month.

Although labor market data has shown clear signs of weakness, Aguilar still believes that the U.S. economy is moving towards a "soft landing," and "even within the realm of possibility, there is no recession risk"—this assessment suggests that the U.S. stock market is likely to rise further. However, he also expects that after the S&P 500 index has risen 31% from its recent low in April, market volatility may increase in the coming months.

"We believe this presents a good opportunity for active fund managers and stock picking," he said, "The degree of differentiation in individual stock performance will intensify."

Aguilar revealed that over the past 3 to 5 months, anticipating an imminent rate cut, Charles Schwab has begun to increase its allocation to small-cap stocks; at the same time, it is also positioning itself in more cyclical sectors of the market—these sectors typically perform well during the transition from economic slowdown to recovery.

He stated that although the current labor market has cooled somewhat, it remains "quite healthy" and at a level acceptable to investors. Additionally, the stimulus effects brought about by President Donald Trump's tax reform will benefit investors, and the balance sheets of businesses and consumers remain robust.

"Overall, these factors will provide strong support for the economy and the market," Aguilar said