Goldilocks And The Just-Right Market 💰

Did you know that in the early 20th century, the U.S. economy expanded by over 42%, showcasing the potential for rapid growth even after significant setbacks?

This resilience is key in today's economic climate, marked by both challenges and opportunities.

In this newsletter, we’ll offer you the following insights:

• What If The Economy Is Getting Stronger: First, we’ll examine evidence suggesting the economy may be strengthening, with a focus on recent GDP growth and the Citi Economic Surprise Index's rise 🚀

• The Market Outlook For 2024: Next, we’ll provide a bullish outlook for 2024, emphasizing strong U.S. stock market fundamentals and sectors poised for significant growth 🔎

• Lower Inflation Coming: Finally, we’ll highlight the slowdown in major economies and the challenges in China, but we do see potential for lower inflation, which could support global economic recovery through central bank policies 👀

Our analysis aims to offer actionable insights, offering optimism with a strategic view of the market's potential for growth and resilience.

What If The Economy Is Getting Stronger? 🚀

The Goldilocks deniers argue that rate hikes don’t work overnight.

They take time to stifle the economy.

But it has been 700 nights and counting since the first increase, in March 2022.

So, maybe Goldilocks deserves to take a victory lap as the signs of a soft landing seem to be all around us, with recession in the rearview mirror 📊

But there’s another alternative, one that is not consensus but seems to be accumulating more and more evidence in its favor.

What if the economy—already defying economic theory by surviving sharply higher rates—is actually getting stronger?

That’s admittedly an odd thing to posit, but the evidence is starting to pile up for the acceleration hypothesis 📈

The Atlanta Fed’s GDPNow model was recently showing GDP growth running at a rapid 3.2% pace and the Citi Economic Surprise Index is up sharply over the past month.

A Goldilocks soft-landing is still the base case, but stronger than expected growth looks likely as well 🤑

The Market Outlook For 2024 🔎

We are more bullish than most for the rest of 2024.

The fundamentals underpinning the U.S. stocks market is strong 💪

Yes, valuations are not cheap, but that’s because fundamentals are strong, and a handful of stocks are generating incredibly strong earnings growth.

If you look at underlying stocks, there are entire sectors that are both undervalued and fairly valued.

The U.S. economy is stronger than most people understand, and rising productivity will allow real wages to rise while inflation continues to trend down 💰

There is ample macro support for continued stock market gains.

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Lower Inflation Coming 👀

Outside of the United States, the world economy is slowing.

Germany, Europe’s main engine of economic growth, is in recession 📉

So too are Japan and the United Kingdom, the world’s fourth and sixth largest economies, respectively.

Dismal economic data continues to come out of China, the world’s second-largest economy.

China could be well on its way to a Japanese-style lost economic decade and to a prolonged period of deflation 🐉

This could lead to a decline in international energy and food prices.

The good news is that those developments should bring lower inflation in general, and lower international energy and food prices in particular 🍲

That should help both the Federal Reserve and the European Central Bank achieve their inflation targets, which should encourage those central banks to not delay the start of an interest rate cutting cycle that would provide much needed support to a weakening world economy.

Inner Circle Macro Update 🔍

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