Rate Cuts Won't Work | Cameron Dawson

Wait...interest rate CUTS will be *more* restrictive than HIKES?

After a blowout Q1, stocks swooned in April, raising concerns the bull rally had ended.

Nope.

The bulls returned in May and as of today, the S&P, the Dow and the NASDAQ are all trading at all-time-highs.

Wall Street is confident, the financial media is downright gleeful, and the market momentum has a lot of tailwinds behind it right now.

But...there are headwinds, too.

Which will win out as we head closer to the uncertainty of the November elections?

For perspective, we're fortunate today to talk with Cameron Dawson, Chief Investment Officer at NewEdge Wealth.

Cameron thinks that markets still have room to run here.

But she warns that if the Fed starts cutting rates later this year, it may have the OPPOSITE effect of what investors are hoping for.

To learn why, click here or on the image below:

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Adam’s Notes: Cameron Dawson (recorded 5.20.24)

EXECUTIVE SUMMARY:

• Despite the Fed raising interest rates above 5%, abundant liquidity has persisted in the economy, similar to the levels seen during the market peaks of 2021. This has contributed to strong equity market valuations and performance. GDP forecasts for 2023 and 2024 have been significantly revised upwards by nearly 200 basis points over the past 18 months, reflecting stronger-than-expected economic growth. All of this has been conspiring to keep the economy out of recession and asset prices elevated.

• Cameron points out liquidity has a self-reinforcing dynamic, affecting market performance by influencing investor behavior. The expectation of continued liquidity can lead to increased investment in risk assets, creating a self-fulfilling prophecy. (This, of course, works similarly in reverse, too)

• Contrary to expectations, markets remained resilient in 2023 despite rapid rate hikes. This resilience is attributed to strong corporate balance sheets, extended debt maturities, and lower net interest expenses due to high-interest income on cash balances. In many ways, this is why the Lag Effect hasn’t arrived (yet).

• That said, Cameron does expect the Lag Effect of higher interest rates to eventually impact the economy, particularly as