The U.S. stock market is facing a tougher climb in 2024, even as investors expect that the Federal Reserve will cut interest rates this year, according to Morgan Stanley’s Andrew Slimmon.
Ahead of the Fed’s rate-setting policy meeting this week, Slimmon, who is senior portfolio manager for U.S. equities at Morgan Stanley Investment Management, said in a phone interview Monday that he’s expecting Fed Chair Jerome Powell to be “patient” regarding rate cuts.
“If it was anything else, that would concern me,” said Slimmon. That’s because, as he sees it, the economy appears strong and the Fed has “time to be patient and make sure the true secular trend in inflation is lower.”
For Slimmon, who acknowledged that “inflation is running at a substantially lower rate” than the Fed’s benchmark interest rate, a message that cuts need to come sooner would make him a little “nervous” because it could mean the economy may be slowing faster than he expected.
Read: Why GDP report is ‘probably the healthiest mix you could get at this point’ for stock market
Powell will hold a press conference on monetary policy on Wednesday, after the central bank concludes its two-day meeting.
Stocks finished higher Monday, with the S&P 500
SPX,
Dow Jones Industrial Average
DJIA
and Nasdaq Composite
COMP
all climbing. The widely followed S&P 500 index has gained 3.3% so far this year, according to data from FactSet.
That’s after the S&P 500 “went pretty much straight up” in 2023, rising in eight out of 12 months last year, Slimmon noted.
“The market has started the year nicely,” he said. Although he expects it will be more “challenging” for U.S. stocks to keep rising in 2024 after the S&P 500’s jump in 2023, Slimmon anticipates “the market will be higher this year because I think earnings will come through.”
Meanwhile, companies this month have been reporting their results for the fourth quarter, with several of the so-called Big Tech companies — sometimes known as the Magnificent Seven — scheduled to release their quarterly earnings this week.
Microsoft Corp.
MSFT,
Apple Inc.
AAPL,
Amazon.com Inc.
AMZN,
Google parent Alphabet Inc.
GOOGL,
and Facebook parent Meta Platforms Inc.
META,
are the companies in the Magnificent Seven scheduled to report their quarterly earnings this week.
Stocks within the Magnificent Seven are leading the market’s rise again this year, Slimmon said.
According to FactSet data, companies that have seen big gains in 2024 include Microsoft, Alphabet, Amazon, Nvidia Corp.
NVDA,
and Meta. Two of the Magnificent Seven stocks are down, though, with shares of Apple slipping so far this year, while Tesla Inc.’s stock
TSLA,
has tumbled.
Slimmon said he is generally “a little cautious” about Magnificent Seven stocks in the near term, as their run-up ahead of earnings results makes for a more challenging setup in the market. But “that’s a short-term issue,” he said.
While shares of those seven companies led the S&P 500’s surge in 2023, Slimmon said he’s expecting to see a “broadening out this year,” with more companies participating in the stock market’s rise.
“I am of the camp that the economy will remain strong,” he said. Citing his conversations with companies as a portfolio manager, Slimmon said, “I don’t hear signs of slowdown.”
Still, the stock market may be more volatile than last year, as the S&P 500 has become more expensive and “the consensus has pivoted” to expectations for a soft landing for the economy after many investors in early 2023 feared a recession, he said. U.S. equities are now more vulnerable to a pullback on bearish worries that may be voiced about any signs of economic weakness as the Fed moves to cut rates, according to Slimmon.
“I wouldn’t sit around and wait” for that to happen, he said, but “having some powder dry for an opportunity to step in” and buying during a pullback may be “the right thing to do.” A more volatile 2024 for stocks doesn’t necessarily mean it will be a negative year, in his view.
“I still think this will be a good year for equities,” he said.
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