Long-term investing demands a careful balance: stocks typically rally on the promise of cheaper money from expected rate cuts, but this momentum clashes with clear structural economic weakness that necessitates the cuts. History favors stocks during easing cycles. However, the key risk lies in whether economic weakness persists and hammers corporate earnings, eventually undermining high valuations. The recent “hawkish cut” by the Fed surprised markets, indicating concern for a deteriorating jobs picture over inflation. While the market continues to rally on optimism, as legendary investor David Tepper warns, valuations are high. The strategy remains to maintain equity exposure to ride the easing cycle while holding significant cash to capitalize on any likely drawdown.
Valuations
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Borrowing Costs Are Going Up
Can the stock market significantly advance with bond yields going higher? That’s what investors are trying to gauge. As governments around the world look increase their (already high) levels of borrowing and spending — it’s plausible bond yields are set to rise further. And it’s not hard to explain why… demand is falling as supply increases. But at what point does the stock market say enough?
Do You Trust this V-Shaped Rally?
Markets staged a ‘rip your face off’ rally on the back of Trump’s 90-day pause on 145% tariffs with China. Over the past three months – the rally ranks among the best we’ve seen in three decades. The question is can it continue; and what needs to happen? My primary concern – it’s not supported by any major change in monetary policy…