New York, NY; November 7, 2024 ~ The Fed cut rates by 25bp and both the statement and press conference were in line with expectations. Chair Powell did acknowledge the distortions of the shelter component of CPI/PCE were dovish. In addition, he pointed out that both the 3- and 6-month core PCE are substantially below the 12-month number.
We are most focused on the critical drivers of inflation which are growth in the monetary base and energy prices. The monetary base declined by .6% over the last year and both oil and natural gas prices are down year over year. Corrected for the distorted shelter and auto components of CPI, year-over-year inflation is zero. Our models show that the Trump administration’s pro-growth policies of lowering taxes on investment and constraining consumption are anti-inflationary. Therefore, inflation fears and the recent rise in bond yields are way over-done. We expect the bond market to rally as we approach month-end and year-end rebalancing of the $56 trillion of global pension assets, and we continue to get inflation reports showing a gradual moderation in reported inflation.
We reiterate our year-end 2025 S&P 500 Index target of 7,000 which assumes a cut in the effective corporate tax rate to 18%, and we see the risk to our target to be to the upside as we enter a Fed easing cycle, the AI boom continues, and the new administration implements pro-business tax cuts and regulation reductions. Our 2025 target on the 10-year is 3.5% as global rate cuts drive a $2 trillion increase in the global monetary base. In addition, we expect the OECD retirement boom to drive a 6% increase in global pension assets which creates ongoing demand for debt and equity securities.
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