No one said it would be a smooth ride to reach the Federal Reserve’s inflation target of 2%. Elevated inflation numbers keep a tight hold on the markets, and the American consumer continues to spend. Slowing inflation from 7+% was the easy part. The low hanging fruit in the Fed’s inflation battle has already been harvested, leaving some real work ahead.
Interest rate hikes.
The labor market remains tight, GDP numbers still look good, and inflation is staying high. All three of these factors point to interest rates likely heading higher. Likewise, rates should remain higher longer than previously anticipated as the increases work their way through the economy.
Earnings have been expectedly tepid from 4th quarter 2022. This has led to a lack of continued momentum higher in equities, as the current price to earnings multiple for the S&P is around 18 (not exactly screaming “buy me!”). Corporate commentary seems to be coming across as resetting expectations. CEOs are working the mics to lower expectations for future earnings and growth, essentially lowering the bar for future reports.