Fed Tacks to Calmer Waters

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The Federal Reserve got nautical on Wednesday, and instead of sailing directly into a storm chose to tack around it through calmer waters. The market initially thought the Fed’s “tack” — a 25-basis-point cut of the fed funds target rate — was not enough, but the blue skies were quickly in sight. Markets expect another rate cut in September and the bulls are running. Despite this market-friendly news, there has been a relentless negative counter-narrative that has kept investors too cautious. We do not advocate “irrational exuberance,” but instead urge investors to get back to their “normal” equity allocations. In our view, keeping equities well below normal targets is not prudent, instead we consider such a stance “thoughtlessly cautious.”

To see our expectations for 2019 earnings per share growth, please see page 42 of the Global Perspectives book.

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