Staying Alive: Despite Headwinds, The Equity Rally Lives On
By John Persinos
Amid the confluence of current headwinds, you'd think the stock market rally would run out of gas.
Persistent fears over inflation, elevated interest rates, a cautious Federal Reserve, bloody overseas conflict, superpower tensions, and a divisive U.S. presidential election all pose challenges to this bull market. And yet, the rally is staying alive.
My contention is that surprisingly strong corporate earnings, a cooling but resilient economy, and justified enthusiasm over artificial intelligence (AI) are providing plenty of fuel to not only sustain the rally but keep it alive for the rest of 2024 (barring a black swan).
Interest rates are high and inflation is stubbornly "sticky," but rates and prices have peaked. The Fed may have pulled back on its rate cutting plans, but a hike isn't in the cards and we're likely to get at least one cut by the end of the year.
Let's take a deeper look.
Just when the market was gearing up for at least two Fed rate cuts in 2024, the Federal Open Market Committee (FOMC) meeting minutes released Wednesday, and a surprisingly robust S&P PMI report on Thursday, served up a reality check. Wall Street has reduced its expectations to a single rate cut, likely in September.
The FOMC minutes revealed ongoing concerns among policy-making officials about the unexpectedly high inflation rates observed in the first quarter.
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