On Air with Altair | 4Q2024
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TRUMP II CAN BE GOOD FOR MARKETS
Investors should be prepared for the unexpected in Donald Trump’s second term, as we have already seen from his first days back in office. The new president has an ambitious agenda, and many of his initiatives could have major implications for the economy and markets.The biggest wild cards are President Trump’s prospective tariffs and his plans to deport record numbers of undocumented immigrants. Our outlook is on balance positive, however. We think Trump’s focus on U.S. business interests and the stock market bodes well for economic growth and investors.
ECONOMY IS ON A ROLL
The U.S. economy has performed impressively in an era of high interest rates and above-average inflation. We think another positive year ahead is likely, based on key measures of both economic fundamentals and investor sentiment. Consumers continue to carry two-thirds of the economy without faltering. The labor market is healthy – reflected in 256,000 jobs added in December, vigorous wage growth, low unemployment, and muted layoffs. Corporate profits retain momentum after growing close to 10% in 2024. We believe the economy is strong enough withstand the stress test of moderate tariffs.
INFLATION FORESTALLS RATE CUTS – FOR NOW
The Federal Reserve is holding off on more interest-rate cuts with inflation remaining sticky near 3%, but we believe the pause will not be an extended one. Continued modest economic growth coupled with no upsurge in inflation – which is our base case – should allow the Fed to resume lowering the benchmark interest rate. We see encouraging signs with a cooling in housing prices – which represent a third of the main inflation index. And excluding housing, inflation would essentially already be at the Fed’s 2% target. It remains on a downward path, albeit a bumpy one. We believe the Fed will ultimately make two to three quarter-point reductions this year.
OUR OUTLOOK
Markets are likely to experience more volatility as investors react to Trump administration policies. But we expect robust corporate earnings and a market-focused president to provide a tailwind for the stock market. We also believe the Fed will keep cutting rates barring an unexpected surge in inflation.
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