Market can 'continue to work' through Fed cuts, earnings growth
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Lazard chief market strategist Ron Temple joins Market Domination Overtime to discuss the state of the market (^DJI, ^IXIC, ^GSPC) and its outlook as the Federal Reserve has officially kicked off its interest rate easing cycle.
"I think the market is well positioned to continue to gain ground over the long term and the intermediate term. I think the Fed's decision this week to cut rates by 50 basis points was somewhat unexpected — yes, priced by the market — but most economists and strategists, including myself, did not think they would actually go through with the 50. I'm glad that they did. I think they effectively bought an insurance policy against excessive weakening in the labor market. Now you combine that with a strong corporate sector, a strong household sector, good corporate earnings, this is a market that can continue to work," Temple tells Yahoo Finance.
He notes that the election could be a risk moving forward, explaining that the combination of the winning presidential candidate and whichever party secures control of Congress has the potential to change the United States' economic trajectory. He also points to the growing deficit as a longer-term concern: "You can't continue to run a 6% of GDP [Gross Domestic Product] deficit and expect not to have some consequences down the road."
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With the third quarter earnings season on deck, Temple expects to see a broadening of corporate profit out of Big Tech and into the rest of the S&P 500 (^GSPC). "When you look, for example, at the second quarter earnings season that we wrapped up about a month ago, the big six tech stocks had earnings gains of over 40%. The rest of the market only delivered about 5% earnings growth year-on-year. By the fourth quarter of this year, the consensus is that's going to narrow down to a 21% earnings growth for the big six tech stocks and 9 to 10% for the rest of the market."
For more expert insight and the latest market action, click here to watch this full episode of Market Domination Overtime.
This post was written by Melanie Riehl