This Week’s Noise
As a result of Friday’s comments from Jay Powell’s Jackson Hole speech, which included the statement that “the time has come” for rate cuts, the market now expects a 25-50bps cut in September.
PCE inflation is to be released on Friday. Consensus expectations are a 0.2% month-over-month increase, translating into a 2.7% year-over-year rate of Core PCE inflation.
Consumer Confidence notably increased to 103.3, ahead of consensus estimates of 100, from a revised 101.9 July number. Morningstar
NVIDIA Earnings on Wednesday after the close are likely a key indicator of the AI story.
Current Market Outlook (6 to 12 months)
Market
We have seen some shift away from the few large stocks that have dominated the market, and we see this continuing through year-end. Economic soft landing seems to be the narrative for stocks for the remainder of ’24.
Economic
As of this week, we expect 200bps or 2.00% Fed Funds rate cuts over the next 18 months. As previously stated, a soft landing seems to be underway. The latest data and comments have indicated that the Fed may have a path to cut rates. We don’t expect the Fed to march back down to near 0% after that 18-month stretch. If that is the case, the economic picture is much worse than anyone expects.
Long-Term View (4 to 7 years)
Long term we believe the US economy will continue to outperform other world economies. This is supported by a combination of re-shoring manufacturing, new investments resulting from the Inflation Reduction Act, US energy independence, and higher productivity due to the implementation of Artificial Intelligence (AI) software/systems.
We believe the US stock market should be 40% to 60% higher by the end of 2028. An S&P 500 index of 7,000 to 8,000 appears possible.
Bonds have re-emerged as an important part of asset allocation as yields have risen. We expect a diversified bond portfolio to produce returns of 3% to 5% above inflation for the next 5 to 7 years. Total bond returns should be strong as the Federal Reserve lowers rates over the next two years.
"You get recessions, you have stock market declines. If you don't understand that's going to happen, then you're not ready, you won't do well in the markets."
— Peter Lynch
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