``` New Fed Chairman Takes Office in May — "All Good News Priced In"? Nomura: U.S. Market in July-November Next Year "Needs Special Vigilance" ```

Nomura Securities warns that as the new Federal Reserve Chair is set to take office in May next year, the US market may face a severe test in the following months. Questions surrounding the new chair's leadership and potential policy friction could trigger investors to sell off dollar assets, resulting in pressure on US stocks and bonds in the latter half of next year.

According to Chase Wind Trading Desk, Nomura strategist Naka Matsuzawa recently pointed out in a report that although the market generally expects the new chair to lead a rate cut in June, the policy path thereafter is fraught with uncertainty. As US economic data shows clear signs of recovery, there may be strong opposition within the Federal Open Market Committee (FOMC) to further rate cuts. Such policy disagreements not only erode market confidence in the new chair, but may also spark tensions between the Fed and the Trump administration.

This uncertainty is expected to erupt between July and November next year. Nomura’s analysis suggests that there may be a trend of "escaping US assets," leading to declining US Treasury yields, a pullback in US stocks, and a weakening dollar. Investors should be wary of possible liquidity reversals during this period, as major global economies may halt rate cuts or even begin rate hikes, thereby weakening the relative appeal of dollar assets.

"High-risk Period" in the Market from July to November

Matsuzawa predicts that although the new Fed Chair is expected to be appointed in May and push for a rate cut in June, this move may face resistance. Against a backdrop of clearly recovering economic indicators, FOMC members may strongly oppose further rate cuts after June.

If the Fed holds rates steady after the June meeting, it will inevitably clash with Trump's call for further easing to boost the midterm election outlook. This policy deadlock, coupled with bottoming inflation and signs of the Fed ending its easing cycle, will be the main catalysts for US stock and bond sell-offs and a weaker dollar from July to November.

Nomura particularly notes that if confidence in the new chair is yet to be established and the Trump administration might face "lame duck" risk after the midterms, outflows from US assets could accelerate.

New Fed Chair's Appointment Typically Accompanied by Market Turbulence

Nomura reviews history and points out that upon the inauguration of the past four Fed Chairs, the market experienced varying degrees of turbulence.

The most notable case was “Black Monday” in 1987, which coincided with two months after Greenspan took office. The report argues that such historical patterns reflect deep market concerns about policy continuity and the capability of new leadership.

Regarding this change in leadership, Nomura specifically mentions the market's strong worries that Trump may intervene in Fed appointments to align with his reflation policies. If the new chair is seen as too “dovish” or compromising towards the administration, they could instead be forced to suppress overtly dovish positions to win back market trust, thereby increasing market volatility risk.

Global Capital May “Divert” from US Assets

From a broader asset allocation perspective, Nomura expects the global economy to see clear recovery by 2026, with market drivers shifting from “excess liquidity” to “corporate profits.” In this environment, while US assets may not decline sharply in absolute terms, their relative advantage will steadily weaken.

The report forecasts that as other major countries halt rate cuts or begin tightening, the dollar will trend weaker. Especially during the sensitive window of the second half of the year, doubts over the Fed’s policy independence and a re-evaluation of US asset dominance may together prompt capital to flow out of US markets.

Nomura believes that compared to the first half, which was driven by excess liquidity, in the latter half, market logic will fundamentally change, and US stocks and bonds will no longer have an absolute dominant position.

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The above highlights are from Chase Wind Trading Desk.

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