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Navigating The Economic Waves 🌊
Did you know that timing the market is often like surfing?
Equity Eats
February 02, 2024
Navigating The Economic Waves 🌊
Did you know that timing the market is often like surfing?
Just as a surfer must read the ocean to catch the perfect wave, investors must navigate the economic currents to capitalize on opportunities.
This analogy perfectly captures our focus in this edition, where we dive into the complexities and strategies of economic forecasting and market timing.
In this issue, we present three thought-provoking articles:
BlackRock Upgrades US Stocks on Soft Landing Expectations: Discover why the world's largest asset manager has finally turned optimistic about US stocks and what it means for investors🎖️
It May be Goldilocks After All: Explore the careful balance the Federal Reserve strives for between curbing inflation and fostering economic growth, and why recent data suggests we might just be in the sweet spot 💲
The Misguided Thinking that a strong Economy Necessitates High Interest Rates: Unlearn the myths surrounding strong economies and high interest rates, and learn why a paradigm shift in economic thinking could lead to more sustainable growth 📈
Join us as we ride the waves of the global economy, giving you insights to help you navigate these chaotic but potentially profitable waters.
BlackRock Upgrades US Stocks on Soft Landing Expectations 🎖️
Congratulations BlackRock, you’re only one year and 3 months late to the party! 🥳
The world’s largest asset manager, with over $9.4 trillion in assets under management, has at long last turned bullish on US stocks, upgrading them on expectations that the US economy is heading for a soft landing.
With inflation declining, the economy still growing at a healthy pace, and the Fed expected to begin cutting rates later this year, what is BlackRock’s response?
An announcement that it is moving to overweight on US stocks.
The stock market recently set an all-time high, and the market bottomed out on October 12, 2022 📉
Being the biggest clearly doesn’t mean being the best, but better late than never 🤷🏻
It May be Goldilocks After All 💲
Most investors believe that the timing of when precisely the Fed cuts interest rates is critical—if they cut too soon inflation will return, if they cut too late, a recession looms.
However, recent economic data indicates that both of those concerns are overblown💥
While there is a trade-off, the Fed doesn’t have to be perfect anymore.
If they cut a little too early, inflation is clearly on the decline anyway.
If they cut a little too late, the economy is strong enough to withstand a few more months of higher-than-needed interest rates.
It’s no wonder the stock market keeps surging higher 🚀
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The Misguided Thinking that a strong Economy Necessitates High Interest Rates 📈
The lead economic story from the Financial Times the other day endorses flawed traditional thinking.
The thesis of the article is that a strong economy translates to a strong labor market, high wages, and those high wages lead to generalized inflation throughout the economy.
There are two major flaws with this argument.
First, since at least the late 1990s, there has been no evidence that a strong labor market causes high inflation ❌
Even in the latest spike in inflation, high wages were not the culprit.
Second, the US economy seems to be entering a period of much higher productivity growth 💪
This suggests that wages should be rising without a need for companies to pass higher wage costs on to consumers.
The conclusion is that the Fed can responsibly reduce interest rates without risking an inflation flare-up 😌
