A cut in interest rates by the Federal Reserve next year is likely to be bad news for U.S. equity investors, according to Hugh Gimber, global market strategist at JPMorgan Asset Management. Stocks have typically rallied on multiple occasions over the past two years on any dovish signal from central bankers – hoping that the cost of borrowing will be lowered as inflation falls. However, Gimber believes Fed cuts in 2024 would likely coincide with declining corporate earnings, creating headwinds for stocks. “I think the key point for me is that the reason the Fed cuts next year is not because inflation has just smoothly glided back to target. Rather, it’s because we start to see cracks in the growth outlook,” Gimber told CNBC’s “Squawk Box Europe.” “And that is clearly not a very positive scenario for equities, particularly when you think about what is baked into earnings numbers.” Analysts are predicting 12% earnings growth for the S & P 500 as a whole in 2024. At the same time, interest rate markets are also pricing in more than 55% probability of a cut in interest in July 2024. A further rate cut is also being priced in by November next year, according to data from CME’s FedWatch Tool . The two data points are contradicting each other in Gimber’s view. “You have this disconnect at the moment: 12% earnings growth expected for next year and still the Fed expected to cut multiple times. Those things can’t both happen at the same time,” the strategist said. Catalyst for a breakdown in stocks Gimber said the third-quarter earnings season will likely start to show cracks in the growth outlook that will lead to lower forecasts. “I think as we move through Q3 earnings season, analysts really start to sharpen their pencils on that 2024 figure, and I think that has to come down,” he said. Gimber believes margins will likely hold up in areas like autos, which have been supported due to a long backlog over supply constraints. However, the JPMorgan strategist already sees weakness in industrial sectors like chemicals and predicts earnings are at risk of being marked down further by analysts. Where to invest Given this outlook, Gimber prefers fixed income over equities right now. He highlighted the income potential in bonds with record-high yields. The 10-year U.S. Treasury yield topped 4.9% on Wednesday , reaching its highest since 2007. The move followed retail sales data that came in hotter than economists surveyed by Dow Jones had anticipated. Within equities, he recommends more defensive sectors that can be resilient amid slowing growth. “It’s the U.K. being a good example of that higher energy exposure, more staples, more defensive sector characteristic. It’s about resilience in equities,” Gimber said. He also pointed to selective emerging market local currency debt as attractive. Countries like Brazil, Mexico, and South Africa still have room to cut rates compared to developed markets.