With the S&P 500 up about 18% for the year, investors are wondering what the next catalyst will be to move the stock market higher. I believe there are at least two that can provide the fuel to move stocks higher over the next six to twelve months.
Here’s where I think those catalysts will come from:
- Cash on the sidelines – Currently, investors have $5 trillion of their investable assets in money market funds.
It is not a bad strategy, as many high-yield money market accounts are now earning an annual rate of 5%+. However, at some point, interest rates are going to move lower as inflation subsides. If the economy can keep up its impressive performance of high wages and low unemployment, then this combination of falling interest rates in a good economy should provide a nice boost for stocks.
- Federal Reserve hits the brakes – With the most recent inflation data coming in better than expected and estimates showing that the Fed’s target rate of 2% inflation will be reached in early 2024, it looks more and more likely that the Fed will halt raising interest rates and may even begin to cut rates at some point next year. This will be a huge tailwind for stocks.
Please comment or send an email if you have any questions. Thanks!
Joe Baker, CFP®
Baker Asset Management, LLC
