RSP - Rotation Is Keeping This Expansion And Bull Market Alive

2024-03-25 09:10:27 ET

Summary

• The Fed plans to reduce short-term interest rates gradually, signaling a positive rate of change in monetary policy.
• The manufacturing sector and housing market are reaccelerating, offsetting slower consumer spending growth.
• Market participation is broadening as the Magnificent 7 technology stocks give way to other market constituents, leading to expectations of lower interest rates and better earnings growth.

Investors breathed a sigh of relief last week to learn that the Fed has not deviated from its plan to reduce short-term interest rates by three quarter-point increments between now and year end, which should be followed by several more in 2025 and 2026 until a neutral rate closer to 2.5-3% is achieved. The timing of the rate cuts, which was of paramount importance last year, has become less of a concern, largely because of the economic resilience we have seen so far this year. The most important thing is that this is a positive rate of change for monetary policy, which is not in a panic, but responding to the cooling inflationary environment and softer rate of growth in the economy. In other words, the soft landing that has gone from a pipe dream to the consensus view on Wall Street is at hand. That is why markets have performed so well since last October....

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