- Morgan Stanley's Andrew Slimmon predicts rate cuts are coming if the Iran war ends soon.
- The ceasefire has been shaky, but has held so far as peace negotiations continue.
- He says there's a possibility that cuts surprise markets, creating opportunity for investors.
Rate cut odds are in flux amid war and economic uncertainty, but Morgan Stanley's Andrew Slimmon predicts that an end to the conflict could usher in easier monetary policy by yearend.
Andrew Slimmon, Morgan Stanley Investment Management portfolio manager and head of Applied Equity Advisors, told Business Insider that he sees rate cuts coming before the end of the year but only if the Iran war's resolution holds and geopolitical tensions don't resurface.
"I think it's roughly kind of six months after this war ends," he said. "If that's in the next couple weeks, then it could be by the end of this year."
While the most recent ceasefire agreement between the US and Iran appears to be holding, the road to a lasting piece still appears shaky. Since early April, Donald Trump has often said that the US is making progress toward a peace deal, only to have further attacks undermine those claims.
This constant state of uncertainty has made it difficult for markets to stabilize, as oil prices continue to whipsaw. Stocks have been able to push to fresh record highs, but ivestors have been forced to deal with persistent war-driven volatility and uncertainty around rate cuts.
Slimmon added, though, that if his forecast is correct and the Fed doesn't move to cut rates for six months, it could lead to a profitable opportunity for patient investors.
"In order for it to be a boost to markets, it has to not be priced in," he noted. "I think that's the nice thing about the Fed Funds Futures market, is it's still pricing in basically the next move to be nothing."
The odds that the Fed will leave its benchmark rate unchanged by yearend edged up slightly on Friday after the April jobs report, which showed the US added way more jobs than expected. Odds of no cuts by the December meeting rose to about 74%, from around 70% the day before the report.
When it comes to the impact of monetary policy shifts on financial markets, weighing surprises versus expectations is critical. Slimmon repeatedly highlighted this, noting that this opportunity in the equities markets will only persist if markets continue not to price in multiple rate cuts in the near future.
He noted that as it stands, the odds favor a quarter-point hike one year from now rather than a cut.
"That's what creates opportunity, though," he added. "If it was pricing in three cuts, then there'd [be] no boost to markets. But when it's a diversion from what the market is pricing in, that you get that tailwind in risk assets."
The stock market has displayed considerable strength in the last month, with the S&P 500 touching new all-time highs on Friday. Some might argue, in that case, that the market doesn't need rate cuts to keep rising. Slimmon maintains, though, rate cuts are still likely coming, just not in the immediate term.
The post Here's when markets can expect rate cuts once the Iran war ends, according to a top Morgan Stanley exec appeared first on Business Insider
