We had the opportunity to participate in the 2024 Milken Institute Global Conference recently, and among the key takeaways for capital markets was that despite revised expectations for rate cuts, investor sentiment remains buoyant, largely driven by optimistic interpretations of Federal Reserve language. Strong economic fundamentals and earnings growth figures provide a solid foundation, which will likely allow markets to thrive further even as rate cuts are still months away.

The stock market and earnings
S&P 500 Index price and trailing earnings-per-share, 1990–present

S&P 500 Index price and trailing earnings-per-share since 1990
Source: Clearnomics, Standard & Poor's, LSEG, Principal Asset Management. Data as of May 16, 2024.

Recently, I had the opportunity to attend the 2024 Milken Institute Global Conference in Beverly Hills and speak on a panel with a few of my esteemed peers about future financial conditions and the overall health of the U.S. economy. One of the hottest discussion topics was how, despite downwardly revised rate cut expectations, U.S. markets remain exuberant.

Interestingly, Federal Reserve (Fed) language is playing a large part in fluctuating market sentiment. Last October, markets embraced Chairman Jerome Powell’s (premature) inflation victory dance, which inevitably loosened financial conditions, and is likely one of the reasons we saw sustained economic strength and associated upside inflation surprises in Q1. Again, during the April FOMC meeting, Chair Powell was clearly quite dovish and pushed back against fears of rate hikes, which re-incensed a bit of happiness into the market. Investors are clearly eager to cling on to even the smallest sign that rate cuts are coming.

Additionally, investors who are looking across the markets and the U.S. economy are seeing fundamentals— growth and earnings numbers— that are quite strong at the moment. This makes it easier to digest Fed language indicating that they might not get the additional tailwind of rate cuts as soon as anticipated this year. Ultimately, with such a strong U.S. economy, it makes sense that markets are doing well despite delayed rate cuts, and investors should be able to eke out further positive gains from here.

Click here to read my full recap from Milken and for more takeaways for the rest of 2024.

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