Strategist worried market is pricing in a very strong economy

The S&P 500 (^GSPC) saw its worst week since early 2023 after last week’s mixed jobs report and weak economic data sent markets tumbling. Miller Tabak managing director and equity strategist Matt Maley joins Catalysts to break down the state of the economy as the Federal Reserve gears up for its first interest rate cut at its September meeting.
Maley explains that a 25-basis-point interest rate cut from the Fed is the likely outcome, explaining, “If they do feel that they have to go 50 basis points, I actually think that will scare some people because the market is not pricing in any kind of a hard landing.” To that end, he argues, “the market’s not even pricing in a soft landing. It’s pricing in a very strong economy going forward.”
However, he is concerned that the market may not see a very strong economy over the next year and a half: “The fact that the earnings are growing, the fact that the economy is still growing, should be able to hold up things for a little bit a while. But at some point, when you get the market as expensive as it is today, they have to kind of face the reality that 22 times earnings is really going to be tough to justify over a longer period of time.”
Maley notes that if Wednesday’s Consumer Price Index (CPI) inflation numbers comes in better than expected, the Fed will likely move “slow and steady” with its interest rate cutting cycle, “If they need to pick up and get more aggressive as we move through the rest of this year or into next year, they can always do that. But I just don’t see the real need to make that move just yet,” he adds.
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