TS Lombard’s chief US economist, Steven Blitz, has reassured investors that the stock market doesn’t necessarily need rate cuts to continue setting records. In a recent CNBC interview, Blitz stated that with inflation at 3.5% to 4% and real growth at 2.5%, a 5.5% funds rate is acceptable.
Despite the possibility of no rate cuts this year, Blitz believes that markets will be able to withstand this scenario. He noted that traders have already adjusted their rate-cut expectations significantly from earlier in the year when some were predicting up to seven cuts.
Blitz explained that recent upticks in inflation have caused some concern about a potential economic slowdown. However, he pointed out that even if rate cuts are implemented due to weakening economic conditions, the concept of a “Fed put” – where the Federal Reserve steps in to support the markets – would likely boost stock prices.
Historically, stock markets have reacted negatively to rate cuts, as they are often associated with recessions. However, Blitz suggested that the Fed’s willingness to intervene if needed could provide a safety net for investors and help drive market gains.
In conclusion, Blitz emphasized that regardless of the outcome, the conditions for a continued market rally remain favorable. Investors can take comfort in the Fed’s supportive stance and the potential for market growth, even without rate cuts.
