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Traders have been pricing in a 25-basis-point interest rate cut from the Federal Reserve at its September meeting next week. Crescent Grove Advisors co-chief investment officer Andrew Krei joins Wealth! to discuss the Fed's rate cut path ahead and how investors can best position their portfolios.
Krei notes that the labor market has been increasingly in focus since July's jobs report saw the unemployment rate hit 4.3%, sparking fears of a recession. However, he believes that the labor market data shows the economy "softening off of an ultra-hot level" rather than indicating the beginnings of a recession. He also highlights "solid" corporate earnings and a "pretty quiescent" financial market as signals of a relatively healthy economy.
"We just sort of take the totality of information and think that perhaps this last little bit of volatility that we've seen over the last several weeks here is a bit unwarranted, given, again, everything that's going on. We think there's a pretty favorable backdrop going forward for markets," Krei explains.
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Krei argues that the current economic backdrop should frame the market as "tech versus everything else." While the tech sector has experienced significant growth over the last year, he expects a broadening of earnings growth outside of the Magnificent Seven tech names going into 2025. He points to healthcare (XLV), financials (XLF), and industrials (XLI) as areas poised to benefit from easing interest rates:
"The forward-looking earnings growth expectations there are starting to look a lot more favorable. And you're starting to converge with these tech names, which we think presents an opportunity alongside it. You've got a much less demanding valuation backdrop for those sectors."
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This post was written by Melanie Riehl