VOO - Fed Needs To Cut Rates Immediately
2024-07-15 14:00:29 ET
Summary
- S&P 500 hits new all-time highs in 2024, driven by AI tech companies like Meta and Nvidia. But this is not sustainable.
- Concerns about the sustainability of growth arise as interest rates impact the economy, the labor market shows signs of deterioration.
- Fiscal deficit offsets the Fed's restrictive moves, but long-term economic growth may suffer; EUR/USD exchange rate and AI bubble add to the bearish outlook.
Intro
Analysts have been expecting a recession for years now, but the S&P 500 ( SPY ) does not care and continues to rise. During 2024 it recorded new all-time highs several times, and those who waited for a crash to invest in it probably regretted not doing so earlier. Those who sold in panic I hope have realized that it always pays to stay invested, even if everyone expects a new 1929 soon.
At the end of 2023 I wrote an article on the 2024 of S&P 500 where I showed my optimism for the first half of the year, thanks to the AI hype, but I underestimated the magnitude of this trend. I expected a new all-time high but not that it would touch $5,600; never did I think Meta would grow an additional 50% in a few months and Nvidia by 160%. It was a pleasant surprise for my portfolio, but I think it is time to question the sustainability of this growth.
Obviously, I will continue with my buy & hold strategy no matter what, but the concerns I had at the end of 2023 are gradually materializing and may halt the growth of the S&P 500. In the second half of 2024, I expect there will be many more challenges to overcome than in the first 6 months, as interest rates are only now really hitting the economy. Empirically, the consequences of a rate hike have been shown to have a lagging effect of about 12 to 18 months on the economy, and we are only now experiencing them in full....
Fed Needs To Cut Rates Immediately