Fed's monetary policy poses risk to the bull market: Strategist
Wall Street is approaching the two-year anniversary of the bull market (^GSPC). Matthew Palazzolo, Bernstein Private Wealth Management senior investment strategist, joins Catalysts to discuss the outlook for the market as the Federal Reserve eases interest rates. Palazzolo believes inflation will be a risk moving forward, and thus, the Fed's monetary policy poses "probably one of the biggest risks that we see to this bull market continuing." He expects the Fed to continue to cut rates throughout the rest of 2024 and into 2025, ultimately getting the fed funds rate to roughly 3%. This scenario would be "a fairly conducive environment for equity investors," he adds, expecting the bull market to continue into 2025. However, he notes that returns will be "more modest" than they have been. He expects the market to broaden out from the leadership of the "Magnificent Seven," and believes that their valuations will not see much more expansion. He adds, "We think the major driver of equity market returns is really going to come down to earnings growth. Consensus earnings growth next year is for something like 10%, which we think is probably a tad bit optimistic. We're expecting something more like 6-7%. And so if you get no movement in P/E (price-to-earnings ratio) multiples and the market just moves on earnings growth, you're looking at something like a mid-single digit return, which again, after 2023 and 2024, that's not so bad." Watch the video above to hear what Palazzolo expects from the AI trend. To watch more expert insights and analysis on the latest market action, check out more Catalysts here. This post was written by Melanie Riehl
