Uncertainty continues to be lifted from stocks driven by Warsh’s confirmation as Fed Chair, stable Iran headlines, and progress on the U.S.-China relationship, and this is giving investors the greenlight to put new money to work.
Now that stocks have breached key levels, we believe that any dips are buyable, especially for investors who are sitting on too much cash and were not as active in markets when valuations contracted in March.
While stock valuations are elevated, these valuations are also justified from the underlying earnings strength. If the Iran war overhang wasn’t in the picture, we would expect stock prices to be higher from current levels.
While inflation has been elevated, these numbers did not come as a surprise given the surge in oil prices, and that’s why stocks are overlooking this because the elevated inflation data was already priced-in and lacked any ability to catch markets off guard.
The spending that is taking place on CAPEX in corporate America is underappreciated by markets, which was largely driven by last summer’s tax legislation. This spending is the backbone of our AI economy and is in its early innings. This CAPEX boom has the ability to propel stocks and the economy for years to come.
While it may be difficult for incoming Fed Chair Warsh to cut interest rates in the near-term given the hot economic and inflation data, we believe the markets can withstand this, and can still move higher even if the Fed stays on hold through year-end.
