00:00 Speaker A
Your outlook for the economy next year. What do you what do you see, Keith?
00:02 Keith
Well, a a punch line is a is an uptick and it’s a modest uptick. Um as you just discussed is it is a two-speed economy. It’s a two-speed stock market as well. But the way we’re thinking about things and why we expect at least a modest uptick is based on three things. One, we do expect the Fed to cut rates modestly over the next year, so that should be a positive. We have this tax bill that was passed. We should see some incentives and some positives in the first quarter as far as for the consumer and also businesses. And then hopefully, we’ll also have a little bit more clarity on tariffs. So you put that all together, that suggests to us a modest uptick, maybe a little bit above 2% as we move into next year.
00:39 Speaker A
Some of our central bankers when you listen to them right now, it doesn’t sound like that cut’s a sure sure thing. Some of them seem to be saying, listen, that 2% target, it’s a target. It’s not a suggestion. I just wonder if next month you don’t get the cut, how would the stock market react, do you think?
01:09 Keith
Well, right now the market is pricing in about a coin toss, and I think that’s probably about right. and to your point, um, you know, they have scar tissue from the inflation before, they’re in a tough position. So, I think initially you could have a a bit of of a hit and you probably would see that more in the small cap and more of the interest rate sensitive areas. But I also think that that for this market, the most important thing isn’t whether the Fed cuts in December or January. I really think it’s it’s about corporate profits. And, you know, what we’ve been saying all this year is that the the north star of this bull market is corporate profits. As the stock market has made a new high, corporate profits has has followed. Now we have to see is that sustainable. A lot of that is driven by tech and AI, but we have seen that broaden out as well. So, I I overall, um, again, I think the interest rates moving down matter on the margin, but it’s not the make or break for the bull market. I think profits ultimately will be and if we do see a little bit of an uptick or this muddle through that you just discussed, continues into next year.