Can the market have its cake and eat it too?

Emboldened by the U.S. Federal Reserve’s (Fed) December pivot, investors are expecting that 2024 will bring both a series of interest rate cuts and a re-acceleration in corporate earnings. But we see an inherent contradiction in these assumptions.

An economy where the Fed is slashing rates aggressively likely won’t be conducive with stronger earnings. Similarly, a strong economy will likely cause the Fed to ease policy much slower than the market expects. Investors believe they can have their cake and eat it too. We think investors might be in for disappointment, because where markets are concerned, we believe you can’t have it both ways.

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