The Fed had its much-anticipated March meeting and unsurprisingly didn’t change interest rates. The economy continues to run along stubbornly strongly with close to 9 million available jobs still on the books. Once again, pre-pandemic, that number was closer to 7 million, so there’s still some room to go. The good news is that the war on inflation appears to be coming to a close. Unfortunately, it isn’t quite over with headline inflation in the low 3% range. That is a far cry from the numbers we saw a year and a half ago, so the worst is behind us from a policy perspective. The key takeaway from the Fed minutes was that they still expect to lower rates three times in 2024 and then again in 2025. So the larger than expected growth numbers that have come out recently haven’t dampened their enthusiasm for cuts.
The stock market, while always hoping for more and sooner, took this news positively, as the endpoint is really the important thing here. The big worry is that higher rates will become considered normal and people will have reasonable alternatives to investing in stocks, such as CD’s and bonds. With the continued commitment to lowering rates, short-term, safe assets should soon lose the luster they have enjoyed recently and the stock market will face less competition. It appears that “when” rather than “if” is still the case in returning to a lower interest rate environment.
In terms of portfolios, we are still optimistic as we expect the upcoming interest rate cuts to benefit both the fixed income and stock market allocations of our portfolios. That being said, don’t hold your breath, as for the last two years we have seen that the economy does not want to be slowed down. It is very likely that those cuts could get pushed back and any accompanying rally would as well. For our plans for the near future, we are nearing a rebalance point if the market continues to climb, but as it stands currently, the market is still inexpensive from a fundamental perspective and we hate to sell inexpensive assets.
As always, don’t hesitate to reach out if you have any specific questions you would like to discuss.
