Current Market Update and Outlook

Brett's Outlook

Summer has brought strong rallies and a market reaching all-time highs, despite continual confusing economic prints and no rate cuts. As of now, analysts are pricing in a 96% chance for a 25 BPS cut in September. I believe 25 BPS is the maximum this particularly skeptical Fed will cut, with possibilities of no rate cut at all. Wall Street is a bit bullish on a rate cut even without any smoke signals from Federal Reserve Chair Jerome Powell. 

Equities have rallied hard so far this summer, exactly in line with the expectations I cited during the spring. Investors look to be more bullish after more clarity and set tariff numbers. However, we still await a much-needed China deal and further announcements regarding semiconductors. I believe a sustained rally is quite possible, but I do recognize the possibility of downside. If there is no rate cut in September, I believe the markets will see a sizeable correction. 

Hunter's Outlook

Fed governor Chris Waller: "I'm willing to look through whatever price increases there are."

"If I see a significant drop in the labor market... I would expect more rate cuts and sooner."

A big to-be-sure "It’s going to take some courage to stare down these tariff increases and prices…"

"I don’t think you’re going to see enough happening in real data in the next couple of months, until you get past July."

Powell has framed the discussion in the context of following a "balanced approach," (paying attention to how far your objectives are from their goals and how quickly one or the other will return to goal-consistent conditions). 

It neither contradicts the reaction function that Waller has sketched out nor rushes to explain how policy should respond to one particular end-state as opposed to certain others.