BOND yields should continue to see further upside in the near term, given the Fed’s hawkish position at the latest meeting on Wednesday (Sep 20). Growth sector equities, analysts said, could also see room for gains.

The strength of the US dollar is expected to sustain, though the US equities market is likely to “trade in a choppy manner”, said Ray Sharma-Ong, investment director of multi-asset solutions at abrdn.

The US Federal Reserve on Wednesday kept interest rates unchanged, though it doubled down on a hawkish stance, with another rate increase projected by the end of the year.

It also expects to reduce the number of rate cuts in the next year, signalling a tighter monetary policy than expected. This comes after US data so far showed a more resilient-than-expected economy, as growth momentum appears sustained despite higher interest rates.

Policymakers continue to see the central bank’s benchmark overnight interest rate peaking this year in the 5.5 per cent to 5.75 per cent range, the same as previously indicated.

All three major US stock indices retreated in the wake of the announcement. The S&P 500 fell 0.9 per cent, the Dow Jones Industrial Average dropped 0.2 per cent, while the Nasdaq Composite slipped 1.5 per cent.

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“We expect bond yields to see further upside in the very near term given the Fed’s hawkish position,” said Tai Hui, Asia-Pacific chief market strategist at JPMorgan Asset Management.

Tai said he remained “constructive” on duration over the next six to 12 months, not only for long-tenor government bonds or investment-grade corporate debt, but also assets that performed well when yields were falling.

This includes growth and tech stocks that can leverage more on valuation re-rating, he added.

On the Asian front, analysts from Nomura were less optimistic, as they believe Asian stocks will likely see some pressure in the very near term, given the hawkish outcome from the Fed meeting.

“Rising US bond yields, stronger USD and elevated energy prices – all are ingredients for a bad recipe for Asian stocks,” said the analysts, though they noted that the trajectory of US growth and inflation data in the months ahead could easily change such a narrative.

“Ultimately, we are of the view that a pullback in Asian stocks could prove to be an opportunity for investors to accumulate some areas of the market where the fundamental outlook is still expected to be positive.”

DBS analysts were similarly hopeful of a positive turn for technology stocks beyond the anticipated weak Q3, driven by bottoming of the memory segment, rapid artificial intelligence adoption and on-track inventory correction.

The high-for-longer interest rates will also continue to spell positives for banks, the analysts added, given the current high interest rate plus slow but steady growth environment.

They were, however, more selective on real estate investment trusts (Reits) and prefer retail and industrial subsectors, while hospitality Reits were seen as a “dark horse”.

Vasu Menon, managing director of investment strategy at OCBC, said investors who can afford to wait will likely see better returns on their equity plays.

“Investors who have the patience to look into the latter half of 2024 and beyond, markets volatility and pullbacks in the next six to nine months can offer opportunities to accumulate gradually for better returns in the medium term once rate cuts kick in.”