The economy has continued to surprise with its resilience to high interest rates. GDP came in at a robust 3% for last quarter and the job openings are still at around 7.5 million. To put that in perspective, there were only 7.1 million job openings in September. So, the economy by that metric is actually looking a bit stronger than it did last year. Unfortunately, that’s not what the market wants to hear when it comes to interest rates. The Fed met last week and held rates steady once again. The market is once again hopeful for a cut in September, but the data would have to turn around in order to warrant that. The belief is still that it’s a matter of when, not if, interest rates will go down, but as seems to be the case for the last few years, it’s taking far more time for the economy to weaken than people expected. Our hope is that we will see one small cut this year and then further cuts next year.
The stock market has more or less been ignoring the new round of tariff talks as would be expected. In terms of corporate profits, the majority of US companies have reported earnings that have surprised to the upside, something that used to matter to the markets and hopefully will come back into fashion. This signals that domestic companies are still able to make surprisingly high profits even in this interest rate environment and historically, earnings have been a primary driver for the stock market.
That all being said, while the market recently hit an all-time high, there hasn’t actually been that much movement in the market to warrant a strategy shift. We continue to be optimistic as the economy is strong, earnings are strong, and we still hope for rate cuts. All of those should help the market move upwards in the coming year or so.