The forecast for Fed policy going forward is bullish for stocks. When the Fed eases this aggressively, the market does not give investors a chance to get back in at a more advantageous price. We believe that this is extremely positive for the market and we would be buyers on dips rather than try to trade around the dips. Because the indices are likely to benefit from inflows into equities from risk-free assets, the bigger hazard is in missing out on an extension of the uptrend.
Investors still seem to be intimidated by the prospect of sluggish profit growth in the first half.
We would like to make sure that the bond market remains stable going forward from this rate cut. Our thesis depends on a relatively consistent message from interest rates. As the Fed funds rate comes down, we would like to see long-term rates remain where they are. Our equity market leadership forecast assumes that the commodity markets will remain stable in the coming months. Following the disinflationary model of 1995, this would allow the broader version of soft-landing leadership to unfold, which includes consumer cyclicals and technology.