Investors have been troubled with constant news reports of inflation, higher interest rates, and a slowing economy. This all culminates into the age-old question: What will the Federal Reserve do Next? When will they act? Are they too late?

The consensus among economists in January was that the Federal Reserve would cut interest rates six times over the course of this year to prevent a
recession. Yet, the economic data has continued to be strong, such that the consensus has now reduced the number of expected rate cuts to two – or less!

No question, the stock market is very sensitive to inflation readings which have recently run hotter than expected. So, while the Fed is well past the 50-yard line with its goal of 2% inflation it currently stands at about 3.2%), the final yards to the goal line are proving tough. As such, we expect volatile market reaction surrounding inflation readings into the summer.

In the first quarter, the market was able to look through this as the inflation and economic data trickled in. However, on April 5, Federal Reserve
member Neel Kashkari stated that the Fed may not reduce rates at all in 2024 if progress on inflation stalls. Then, five days later on April 10, the Consumer Price Index came in hotter than expected. Not surprisingly, the Dow Jones Industrial Average dropped sharply.

Our view is simple: the tightening regime from the Federal Reserve is very likely done. The next move from the Fed is lower, whether it is in June,
September, or after the November election. The stock market is a forward looking mechanism and will adapt accordingly.

Furthermore, our bullish stance is not based only on projected movements of the Federal Funds rate. We believe stocks will trend higher because an
earnings recovery is underway. As I have stated many times, earnings drive stock prices. Fourth quarter 2023 earnings results for the S&P 500
companies, reported primarily in January, were better than expected. More importantly, overall forward guidance was raised and is expected to
grow over 10% for the full year – which may prove conservative.

Our thesis is also based on the continued strength of the U.S. economy. Put another way, interest rates are staying high for the right reasons.
Unemployment remains low, at 3.8%. The ISM Manufacturing Index just came in at 50.3% for February, a strong sign of economic activity. The consumer remains resilient, based on higher income; ADP reported wage growth at 5% in March, 10% for those changing jobs. Finally, estimates for the first quarter suggest that GDP could grow by 2.5% – a favorable backdrop for equities.

Our recommendation for investors is to stay the course; short-term Interest rate moves are hard to predict, but long-term gain on the stock market are not!