An economic narrative of a soft landing continues to gain traction after October’s cooling CPI report, though uncertainty persists around US growth prospects. NewEdge Wealth Senior Portfolio Manager Ben Emons sees encouraging signs of rebalancing that point to a continued interest rate pause by the Fed.
Emons notes key inflation factors like rent are beginning to return to pre-pandemic levels. He tells Yahoo Finance that the Fed is neither cutting nor hiking rates further amid moderating price increases, and markets are normalizing. Retail earnings, from companies such as Walmart (WMT), are anticipating deflationary relief for consumers this holiday season.
However, Emons says calls for Fed cuts don’t always point to a better economic landscape, arguing interest rate swings from 2% up to 2.5% better reflect confidence in rate stabilization rather than distress.
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Stocks, inflation, Fed rate cuts, and the possibility of a soft landing

With the recent surge in inflation and the Federal Reserve’s decision to cut interest rates, the stock market has been a hot topic of conversation among investors and economists alike. Many are wondering whether a soft landing is possible in the midst of these economic uncertainties.

Inflation, as measured by the Consumer Price Index (CPI), has been on the rise in recent months. This has raised concerns about the potential impact on the stock market, as higher inflation can erode the purchasing power of consumers and lead to higher interest rates. In response, the Federal Reserve has implemented a series of interest rate cuts in an effort to stimulate the economy and bring inflation under control.

The connection between stock prices and inflation is complex. On one hand, higher inflation can lead to higher interest rates, which can put downward pressure on stock prices. On the other hand, some companies may benefit from inflation, particularly those that can pass on higher costs to consumers. As a result, the stock market’s response to inflation can vary widely depending on the specific circumstances.

The Federal Reserve’s decision to cut interest rates has also been a major point of discussion. While lower interest rates can stimulate economic activity and make stocks more attractive relative to other investments, they can also signal that the economy is slowing down. This has led to speculation about whether the Fed’s rate cuts are a sign of impending economic trouble or a proactive move to prevent a more severe downturn.

All of these factors have led to speculation about the possibility of a “soft landing” for the economy. A soft landing refers to a scenario in which the economy slows down gradually, without entering a recession. Such a scenario would be beneficial for the stock market, as it would allow for a controlled adjustment without the chaos and uncertainty of a sharp downturn.

While it is impossible to predict the future with certainty, there are reasons to be cautiously optimistic about the possibility of a soft landing. The labor market remains strong, consumer spending is healthy, and the Fed’s proactive stance on interest rates indicates a willingness to support economic growth. Additionally, corporate earnings have been generally strong, which can provide a buffer against economic headwinds.

Of course, there are also risks to be mindful of. Geopolitical uncertainties, trade tensions, and the potential for a policy misstep by the Fed all have the potential to derail the economy and the stock market. As always, it is important for investors to maintain a diversified portfolio and remain vigilant about potential risks.

In conclusion, the interplay between stocks, inflation, Fed rate cuts, and the possibility of a soft landing is complex and multifaceted. While there are reasons to be cautiously optimistic, there are also risks to be mindful of. It is important for investors to stay informed, remain diversified, and be prepared for potential market volatility.