Omar Aguilar from Charles Schwab Corp. stated that a 25 basis point rate cut by the Federal Reserve next week would represent the most favorable scenario for financial assets, while a larger reduction could potentially spark investor concerns.

Aguilar, who serves as CEO and Chief Investment Officer of Schwab Asset Management, noted at the Future Proof conference in Huntington Beach, California, that if policymakers maintain current borrowing costs unchanged, Wall Street could react "quite negatively" given that rate cuts have essentially been priced into the market. Conversely, if the Fed takes aggressive action with a 50 basis point cut, investors might interpret this as a signal that "the economy is in trouble."

"Therefore, a 25 basis point cut appears to be the most appropriate choice," he said in an interview. "This aligns with current market expectations, and I believe it would be viewed as a 'fine-tuning' of current monetary policy."

Currently, traders have fully priced in a 25 basis point Fed rate cut at the September 16-17 policy meeting. Last week's weaker-than-expected employment data prompted some Fed watchers to speculate that officials might consider a 50 basis point cut this month.

Despite clear signs of softening in labor market data, Aguilar maintains that the U.S. economy is progressing toward a "soft landing" with "no recession risk, even within the realm of possibilities" – a assessment suggesting further upside potential for U.S. equities.

However, he also anticipates increased market volatility in the coming months following the S&P 500's 31% rally from its recent April lows.

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

Aguilar revealed that over the past 3-5 months, Charles Schwab has begun increasing allocation to small-cap stocks in anticipation of imminent rate cuts, while also positioning in more cyclical sectors of the market – areas that typically perform well during transitions from economic slowdown to recovery.

He stated that while the current labor market has cooled somewhat, it remains "quite healthy" and at levels acceptable to investors. Additionally, the stimulus effects from former President Donald Trump's tax legislation will benefit investors, and both corporate and consumer balance sheets remain robust.

"Collectively, these factors will provide strong support for the economy and markets," Aguilar concluded.