TS Lombard’s chief US economist, Steven Blitz, believes that the stock market doesn’t necessarily need rate cuts to continue setting records. In a recent interview with CNBC, Blitz stated that with inflation at 3.5% to 4% and real growth at 2.5%, a funds rate of 5.5% is acceptable.
Despite the possibility of no rate cuts this year, Blitz remains optimistic about the market’s performance. He noted that traders have already adjusted their rate-cut expectations significantly from earlier in the year when some were predicting as many as seven cuts.
Blitz explained that the recent uptick in inflation has caused some concern among investors about a potential economic slowdown. However, he believes 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 help boost stock prices.
Historically, stock markets have tended to decline when the Fed starts cutting rates, usually in response to a recession. However, Blitz believes that the Fed’s willingness to intervene if needed provides a safety net for investors, potentially leading to a market rally.
In conclusion, Blitz emphasized that regardless of the outcome, the case for a continued market rally remains strong. Investors may not need rate cuts to drive stock prices higher, as the Fed’s support could be enough to sustain the market’s upward momentum.
